We’ve all heard the cliché “all good things must come to an end,” which has been bandied about with slight variations since Chaucer penned the “Canterbury Tales.” Although many investors may not want to believe it, it is very possible that we’re approaching that point with the current bull market.
As we approach 2018, there are a number of factors that have the potential to derail the bull case — Federal Reserve tightening and balance sheet normalization, interest rate action from the Bank of Japan and European Central Bank, potential Trump administration policy missteps, the risk of open conflict with North Korea, high equity valuations and low bond spreads. The market has mostly shrugged off such concerns over the last several years, and it’s certainly possible that it will continue to do so.
However, judging from market history, there is a high likelihood that the lack of volatility in the equity markets will prove temporary and that measures will revert toward historical averages. Consider also that it usually isn’t the widely known and publicized risks that have the biggest market impact, but the ones that no one anticipated. As the old boxing aphorism goes, “It’s the punch you don’t see coming that knocks you out.”
FOMO (fear of missing out) is the predominant sentiment today, and our clients have certainly not been immune. No one wants to see clients walk away from potential returns, but we believe part of an advisor’s fiduciary duty is to also hold a healthy fear of permanent losses and unachieved goals, which are ultimately much more painful for clients than missed gains.