As we enter the second half of the year, we maintain that we are in the “sweet spot” of this long-term bull market and that the S&P 500 could return as much as 25% this year. A correction, if it occurs, could be/should be scary and fast but we think the first major decline of this stage of the bull is probably a good way off. We pay several research firms to enhance our own understanding of the market. They rarely all agree, and we use the different opinions to help support, question, or form our own opinions. One of our research partners, who disagreed with our belief that we had formed a major low in March 2020, is now saying that the market is forming a bubble and we have heard other firms talking about this also. One defining characteristic of a bubble is that almost no one believes you are in one, like the end of the 1990’s when the consensus believed that the business cycle had changed and there were not going to be any more painful bear markets. The first two years of the new millennium proved that wrong.
We have kept most of our investments in the U.S. for the past few years and it has been a good call. But as the world comes out of the pandemic, growth opportunities are likely to pop up elsewhere and create some compelling valuations in some sectors. Historically, in “normal” circumstances, the best risk-adjusted return is achieved by investing 15%-20% of portfolios in international markets. That will be something we will work toward as hopefully things get back to normal. Most of the investments we make internationally are predominately in ETF’s and are index based so the focus in this area is how the country’s economy is doing as a whole rather than individual stocks but we will occasionally also invest in individual stocks based in another country.
Gary and Dianne
This report is provided as a general market overview and should not be considered investment or tax advice or predictive of any future market performance.
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