Many may know, but for those who do not, I was a collegiate Lacrosse player at San Jose State, and I had a short stint of playing international Lacrosse for the Irish National Team in the European Lacrosse Championship. I've always been fascinated by the lessons learned in sports and their application to personal and professional life. A common adage in Lacrosse is for defenders to watch their opponent's waist and hips, not their hands or stick. Focusing on where the motion of a dodge begins, rather than where it ends, allows you to react appropriately and accurately.
And with investing, this principle applies aptly to portfolio management - as in, it's better to focus on the economy and long-term trends that drive markets and policy rather than solely on outcomes such as Fed decisions or past returns - i.e., where we've been. In other words, the best way for investors to position their portfolios today is to understand better where we are in the business and market cycles - i.e., where we are and where we are going.
We discuss in this episode of The Wealth Effect Podcast:
Matt Faubion, CFP®
Founder - Wealth Manager
Show notes and charts:
1. It is still early in the bull market and expansion
Stock Market Bull and Bear Cycles
The average market cycle has lasted between 5 and 12 years over the past 40 years. Although the recovery has been swift, growth trends suggest that the market cycle can still go a long way.
2. Economic growth is expected to be strong
U.S. Economic Growth
Last week's upward revision to Q2 GDP showed that the economy grew by 6.6% during that quarter. Consensus economic projections suggest that the economy will continue to grow at a robust pace before it inevitably decelerates to more historically normal levels.
3. Valuations are not cheap but may come down over time
Stock Market Price-to-Earnings Ratio
Valuations across the broad market have been high due to the fast market recovery and depressed earnings through the COVID-19 economic shutdown. However, strong and accelerating earnings are helping to deflate these lofty valuations.
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