Does the Market Need a Sherpa?
BY MICHAEL SICURANZA
Jon Krakauer, one of my favorite authors, writes in a way that is mesmerizing to me. His vivid descriptions draw me in and drop me right into the middle of his stories, engaging all of my senses.
In his bestseller, Into Thin Air, about his disastrous expedition to the top of Mount Everest, Krakauer discussed how to successfully climb to the Everest summit. Everything starts at Base Camp 1 where climbers acclimate to the high altitude. Next, climbers ascend to Base Camp 2, which is higher on the mountain, where again they acclimate to a new altitude level, then onto Base Camp 3. Climbers repeat this pattern, while also including a stop at a lower camp to re-oxygenate. This methodical stair-stepping process is what makes a successful summit to the top of Everest possible.
I’ve had several recent conversations with clients about year-end tax planning, and naturally we start discussing the current state of the markets. Most of my clients are concerned about issues such as the U.S. presidential election cycle, escalating tensions with Iran, and the market reaching all-time highs. TV pundits would have you believe that markets have increased in a straight trend line for the last 10 years–this is simply not true. We’ve experienced several price corrections (2011, 2016, and 2018) that brought us close to bear market territory. More importantly, we’ve seen market corrections via time, or periods when the market fluctuated in a band or range for significant amounts of time, usually greater than 12 months.
Credit All Star Charts
This is exactly what the market has done since 2013 when it broke above it’s 2007 high. In my opinion, this is when our new bull market started. My reason for selecting that date is a great subject for a separate post. To align my analysis with Krakauer’s description of the Everest climbing process, consider 2013 to be Base Camp 1. The market ripped higher for most of the year and into 2014. On to Base Camp 2: From 2014 through June 2016, the market stalled and bounced in a 300-point S&P500 range for over 18 months. In July of 2016 through January of 2018, the market broke through that trading band and went even higher ie. Base Camp 3. From January 2018 through October of 2019, we’ve stalled at Base Camp 3; however, this fall, the S&P500 broke above 3050 and is now making the ascent towards Base Camp 4 (target around 4000).
So how do we know that we are heading to Base Camp 4 rather than potentially falling off the top of Everest? We don’t know for sure–I have no crystal ball–but the evidence we look at suggests that we will move higher. To that end, we will continue to follow our process, which helps our clients live their best possible life.