With the rise of >20% from its recent low, S&P 500 is officially deemed to be in its bull market.
How do we determine a bull market?
By definition, a bull market is a situation in which stock prices rise by 20% or more from recent lows.
Moving forward, will the S&P 500 rally continue?
In the short term, I firmly believe that the market will consolidate temporarily in the next couple of weeks before it continues going higher.
In the short term, I firmly believe that the market will consolidate temporarily in the next couple of weeks before it continues going higher. Moreover, Carson Group Chief Market Strategist, Ryan Detrick found out that stocks which rose from 20% off a 52-week low since 1956. For the most part, the three months stocks were frequently choppy, with the benchmark index actually falling over 0.5% on average in the first month upon hitting bull market territory.
For the most part, the average bull market often lasts over 973 days, or 2.7 years. Hence, I think we are in for a good ride.
What are the risks in the market now?
1. Overconfidence and FOMO
With money news outlets saying it is a bull market now, speculators may feel FOMO (Fear Of Missing Out) and start investing heavily into the market. “During a bull market, everyone is a genius.” The problem starts showing signs of cracks, when the bull market ends. This is when speculative stocks tend to have outsized losses.
2. Impact of Interest Rates and Inflation
With high interest rates implemented to fight inflation, the last couple of years have been really unusual. Many predicted a big economic recession, which has yet to prevail which is hugely concerning.
While I firmly believe that, a big economic recession often tends to happen, when there is uncertainty in the world/market. During such times, there is big volatility in the market which causes huge swings.
What can you do now?
1. Dollar Cost Average (DCA)
For those that don’t know, dollar cost averaging is a strategy to manage its risk when buying stocks or exchange traded funds (ETFs).
DCA is a very good way to build long-term wealth as when we are investing, we should always neglect being emotional. This is because whenever we start to become emotional, this is when we make impulse and irrational decisions.
DCA is an extremely great way to invest in a long-term plan as you are investing small sums of money into the market consistently. Whether the market is in a bull or bear market, you are not heavily affected!
Our Stand
What I feel is, during a bull market, it is indeed a great opportunity to invest. However, one should understand the risk and time horizon each has before investing. As different asset classes will have each set of risks and time horizon being its ideal investment. If you are afraid of risks, DCA is a good way to manage your risk! It is critical to understand what you are investing in and make informed decisions before you start investing in the market!
If you are keen, check out our articles on other analysis: Trust Bank Referral, Term vs Whole Life insurance and why good money advice may be wrong for you?
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Disclaimer: The information provided by LearnToInvest serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock.