Stock market data with silhouette of bull and bear clashing in background
Stock market data with silhouette of bull and bear clashing in background
Financial Health
May 1, 2018

Investing before the bull becomes a bear

While the current market is on pace to set the record for the longest running bull market, a new Wells Fargo Investment Institute report says late-cycle investment opportunities remain.

With all the financial swings and fluctuations the market has seen in 2018, many investors may be wondering if the U.S. bull market is turning into a bear. A new Wells Fargo Investment Institute report, “Investing Late in a Bull Market,” calls for further stock market gains and continued economic recovery in a bull market that’s not over yet.

Tracie McMillion
Tracie McMillion

Tracie McMillion, report author and head of global asset allocation strategy for Wells Fargo Investment Institute, said some of the factors supporting economic growth include the strong U.S. labor market, near-record levels of business optimism, and tax cuts that provide more money for workers and businesses to spend and invest.

McMillion said the transition between a bull and bear market is critical for investors since the best — and most difficult — time to prepare for a bear market is late in an economic cycle but before a bull market’s end. In fact, she said, the markets have historically continued to perform well in the latter stages of bull markets.

“Investors should look at the volatility as a potential opportunity and a normal part of the markets,” McMillion said. “If fully invested, volatility gives you a chance to rebalance positions at lower equity prices.”

The report flags sectors like consumer discretionary, such as electronics, apparel, and home improvement retailers, and industrials, such as manufacturing or defense equipment producers, among the investments that historically have fared well in the mid-to-late bull market periods. In addition to these sectors, Wells Fargo Investment Institute favors financials  — which have lagged in this particular cycle  — and health care.

“We believe it is still a good time to invest,” McMillion said. “We advise investors to look through the day-to-day market swings and focus on forecasts over the next 12 months, where we see markets higher.”

Over the past nine years, she added, the U.S. equity markets have reached new records. History suggests bull markets do not end suddenly, the report said. Instead, bear markets (defined as a downturn of 20 percent or more) follow several corrections of 10 percent or more.

“The bottom line is that we do not believe we are at the end of the business cycle, nor at the end of the bull market,” McMillion said. “But it’s time to make sure you’re comfortable with the amount of risk in your portfolio. We will see another bear market probably within the next few years.”

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