Reply To: How High can to market go now?

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Hello Daniel,

Your observation that the market (the US stock market, as measured by the S&P 500) has been going straight up for years now has a lot of merit. It’s been advancing at a very quick clip since March of 2009, when it bottomed out following the financial crisis. We believe a huge tailwind to the stock market has been the extraordinary monetary policies put in place by the Federal Reserve starting in 2008. The Fed’s decisions to lower interest rates to near zero and to embark on “Quantitative Easing” measures to expand the US’s monetary supply, have, in our opinion, been major contributors to the rapid appreciation of stocks and real estate.

Both these markets and extraordinary policies make us nervous, and for good reason. The US stock market is now fairly and maybe overly valued, in our estimation. However, extraordinary policies can mean extraordinary markets – meaning the US market may continue to go up for a while. The policies make us nervous because they are all-new, in many respects. We’ve never held interest rates near zero for this long. We’ve never let loose QE programs either. Until recently, they were only the subject of academia. This all means that we are literally in unchartered waters. No one knows for sure how things will work out and what the “unintended consequences” will be.

However, we take comfort in knowing that our conservative disciplines will serve us well. Since we suggest to spread your investments across several asset classes, you never have all of our eggs in one basket. Also, our asset ranking and exit disciplines allow you to take risk off the table – go to cash with specific asset classes on a case by case basis – when necessary. Having these types of measures in place allows everyone to sleep soundly at night.

All the best,
The Autopilot Team