The S&P 500 Wheel of Fortune
For those keeping even a casual eye on the U.S. market, it would be hard to ignore that it’s been behaving like a giddy contestant on the Wheel of Fortune lately. During the week of May 6–10, the S&P 500 Index spun past a 1,600 milestone, both beginning and ending the week at new all-time closing highs of 1,614 and 1,633, respectively. As of this writing, it seems to be saying, “Let’s spin again, Pat,” having hit yet another record market close of 1,667 this past Friday.
How to reap the benefits.
In the market, if you have taken the time to carefully construct a globally diversified balanced portfolio, you are already well-positioned to reap appropriate benefits from the current market surge … without reading too much into it or allowing the excitement of pursuit to tempt you off-course. As Moneyball author Michael Lewis has observed, “Our willingness to believe that we can hire some expert to tell us how to outperform markets is a big problem, with big consequences.”
Or, as financial author Larry Swedroe states even more bluntly, “I would say the No. 1 thing [in portfolio construction] is to get the asset allocation right. And the only way to control it is by being passive. Once you go active, you don’t even know what the hell you own.”
The “experts” were dead wrong.
The title from a recent Business Insider column says it all: “Literally Every Strategist On Wall Street has Been Wrong About The Stock Market.” The article points out how it’s only May, and the S&P has blithely blown past even the most optimistic prediction from 14 of the best-known Wall Street strategists who laid their January 5 opening bets for the S&P 500’s year-end numbers. Even the most optimistic prediction, which happened to come from Citi, called for a year-end target of 1,615.
Of course the year is still young. Citi and friends could still turn out to be correct in their prognostications. But as any contestant will tell you, the best way to win the game is not necessarily to nail all the highest calls. It’s to avoid having to stage a recovery after landing on “bankrupt.” In that context, avoid stretching for extra spins at the wheel. Be patient and positioned for reaping market rewards commensurate with your goals and risk tolerances. That continues to strike us as the most fortunate course of all.
