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Faster than a speeding locomotive

December 26, 2013 - Steve Murch
Should we just thank our lucky stars or start to worry?

The Dow is on an unprecedented roll, passing milestones faster than a driver with an empty bladder passes rest areas. Which begs the question: When will it all end? Or at the very least: Is there going to be a correction?

On Nov. 21 the Dow closed above the 16,000 mark for the first time. Though it had passed it earlier that week, it as the first time the market closed above the milestone mark. It's just 35 days later and we're about halfway to 17,000.

From the 15,000 mark, which happened on May 7, to the 16,000 mark took 198 days, which was the speed of light when you consider it took 1,460 days (four years) to go from 14,000 to 15,000. That's a lot of momentum, but what does it really mean?

I'm serious. What does it really mean? We still have unemployment around 7 percent nationwide and there is lots of talk about parts of the country still struggling. Investment specialists will tell us that it's a good sign, and it is if you are invested. Many of us are invested through retirement plans, but aside from that the majority of Americans probably aren't investors at all.

For the investors, it's a great motivator to stay invested and even continue to invest. As long as the market continues to grow and they continue to make money off their investments all is right with the world in their eyes.

"People may discount milestones, but they are psychologically significant," Todd Salamone of Schaeffer's Investment Research told USA Today in November after the Dow crossed the 16,000 mark.

So the question of psychology is this: What happens to the psyche if it tumbles 1,000 points (or more) as a correction? Initially we would think nothing, but if it stays there, does psychology play a role in future investments?

There are only two ways to really improve profit margins, which is big motivator in stock improvement — increased revenue and decreased expenses. If sales of goods don't climb or even stagnate at some point the profit margins are likely to narrow, are they not? If so then trimming expenses further is necessary.

What's the biggest expense? Payroll. Oops, that would mean layoffs.

I'm all for the stock market climbing. It's a sign that good things are happening in the economy. And, I try not to be pessimistic, but the speed of which the market is rolling scares me a little bit. There's a market correction, and then there's a MARKET CORRECTION. If we have to have one, I'm certainly hoping for lower case letters as opposed to upper case letters.

So I ask one more time: Should we just thank our lucky stars or start to worry?

 
 

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