Gene Todd, Executive Vice President/Managing Director of First Bank’s Wealth Management

Gene Todd, Executive Vice President/Managing Director of First Bank’s Wealth Management


Good day everyone and welcome back to
First Bank’s Wealth Management Market commentary video series. My name is Jean
Todd Executive Vice President and Managing Director of First Bank’s Wealth
Management group. As I record this video the US stock market is up 17%
year-to-date in addition since the current bull market began in March of
2009 the stock market has risen 357 percent. This bull market is the second
longest in history at eight and a half years the longest bull market in this
country lasted 12 and a half years and occurred from 1987 through 2000. So not
surprisingly clients constantly ask us will this bull market continue and if so
for how long so I thought I’d take this opportunity to address this topic but
first let’s get this out right now if anyone ever tells you that they can
predict the next stock market crash or bear market run away as fast as you can.
It’s never a good idea to invest with fortune tellers or crystal ball gazes.
I’m not in the business of predicting things however what I can tell you is
this bull markets don’t die from old age bull markets die because they get
murdered here’s my take on four general ways to murder this bull market in
today’s economic environment. Number one over valuation we saw this happen during
the tech boom in 1999 when tech forward p/e multiples approached 50 and the S&P
overall approached 25 well today the forward p/e multiple for tech is at 18
point 6 and the p/e multiple for the S&P 500 is at 18
today’s p/e multiples coupled with low core inflation suggests that this market
is a long way away from being overvalued now I’m not saying that this market is
cheap in fact we believe that the market is fully valued at these levels but we
are a long way away from being overvalued. Number two in overly hawkish
Fed yes the Fed is tightening ie raising rates we had two Fed rate increases last
year and two rate increases this year with the strong probability
that we will get one more 25 basis point increase in December but with the
10-year Treasury bond at around 2.4 percent it is measure Li below it’s 4.4
percent 25 year rate average or it’s 6.5 percent fifty year average even if the
Fed continues to raise rates into 2018 and 2019 we are nowhere near high
interest rates wounding the current equity market rally. Number three
euphoria by investors the current environment is nothing like the
environment we experienced in late 1990 remember those days when everyone and
their brother owned stocks we all knew someone who would quit their day job to
become a day trader you cannot go to a cocktail party without someone talking
about how much money they made in the market this is not that kind of stock
market in fact half of the US population does not even own stocks retail fund
flows have been negative all year meaning retail investors have been
taking money out of the US equity markets US investors are sitting on 50
trillion in cash cash as a percentage of GDP is the highest it’s been since the
1980s there is absolutely no sign of euphoria out there by investors the last
thing that can murder this bull market is some sort of geopolitical issue I’m
talking about North Korea a massive cyberattack a catastrophic earthquake
there is no way to predict these types of events so therefore we suggest
clients don’t factor geopolitical issues into their investment decisions of
course our world will experience a future devastating event but using
history as a guide the equity markets will eventually recover and continue its
upward trajectory for example let’s look at 9/11 one of the most defining moments
in US history following the attack the US stock market
closed and remained that way for a week once the markets reopened the S&P 500
lost 11.6 percent in four trading days the good news was that the panic selling
was short-lived and all major US indices were
covered to pre 9/11 levels within a month so where does all of this leave us
with respect to our question around continuation of this bull market can it
continue to run I believe that it can I’m not making a call on how much higher
it can go but I believe that it can continue and if it can continue then for
how long remember I’m not a prognosticator predicting markets is
impossible to do because you have to be right about predicting when to get out
and you have to be right about predicting when to get back in I will
say this there will be pullbacks Corrections and yes bear markets there
always have and there always will but I believe in capitalism entrepreneurship
our educational system our great companies and their ability to innovate.
I also believe in the Millennials and their future ability to take us to the
next level. Therefore I firmly believe that our
investing best days are still ahead. Thanks for watching and if you have
questions comments or ideas for future topics please email me at [email protected] see you next time

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