InvesTech Research

03/03/2017 7:00 am EST

Focus: MARKETS

James Stack

President, Stack Financial Management

Since the November 8 Presidential Election, the DJIA (Dow Jones Industrial Average) has gained almost 2300 points. This spectacular 11.9% gain is the second largest 14-week post-election rally for the DJIA since 1930.

One can only hope that it’s merely coincidence that the only larger post-election rally occurred in 1996-97 during the Tech Bubble.

Fortunately, age alone does not bring about the end of a bull market, the current evidence indicates that this market should be given the benefit of doubt. Still, bull markets do not last forever, and now is the time to vigilantly watch for warning signs of a looming bear market.

The advance in the DJIA from when it initially hit 10,000 in 1999 to 20,000 required more than 17 years and included two generational bear markets. 

We suspect the path to 30,000 from today’s lofty valuation level will include something similar in the form of a hangover or two.

At this stage, the evidence is clearly in the bullish court, but this bull market is about to celebrate its eighth birthday next month and it’s hard to ignore the risks that inevitably emerge with an aging economic expansion. 

Consequently, our Model Fund Portfolio is positioned to take advantage of potential gains in 2017; we are 84% invested. But we continue to emphasize the importance of a defensive sector weighting and a healthy cash cushion as market top warning flags could drop into place as the year progresses.

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