Don't Give In to Fear... Stay Invested
In the final weeks of 2018, financial news felt like a continuous funeral march...
The S&P 500 Index was in the middle of a brutal 20% nosedive, but stocks were trading at high valuations.
Federal Reserve Chairman Jerome Powell was aggressively hiking interest rates and signaling that rates would need to continue to rise. And the Treasury yield curve began to invert, meaning short-term rates were higher than long-term rates.
At the same time, an escalating U.S.-China trade war threatened global supply chains.
Wall Street strategists lined up to go on TV to officially announce the death of the decade-long bull market. Many talking heads urged investors to dump their stocks, retreat to cash, and brace for an imminent recession.
If you listened to these "experts," your exit felt entirely logical. You had every fundamental, macroeconomic, and geopolitical reason to liquidate your portfolio.
But that was the wrong move. The market drop at the end of 2018 was nothing more than a market correction.
Stocks went on to soar from there – returning more than 30% in 2019.
The market didn't crash until 2020 because of the pandemic.
The takeaway is this... There is always a compelling reason to sell.
You can spend hours finding every troubling stat out there. In just about any year, you can convince yourself that the market is about to fall off a cliff. But stocks build their greatest bull runs by climbing what we call a "wall of worry."
Today, there are countless reasons to sell...
Valuations are high. When looking at the S&P 500's forward price to earnings ratio, we're above the one standard deviation mark...
Sentiment is also high. According to Bank of America's Bull & Bear Indicator, we're at the most bullish level since 2021. Take a look...
Beyond that, there's a chance the Fed raises interest rates in the near future, inflation is sticky, and the list goes on and on.
If you're feeling that the market is near its top today, no one would blame you.
But giving in to that fear means you may miss out on spectacular gains as this bull market climbs the wall of worry.
I try to tune out the noise and focus on a couple simple things...
The first is the advance-decline (A/D) line.
We've talked about this powerful tool before. But it's worth covering again...
One of the simplest ways to gauge market health is to see if more stocks are rising than falling.
The A/D line takes the number of stocks that went up in a given day and subtracts the number of stocks that went down. If more stocks went up, the line goes up. If more stocks went down, the line goes down.
In a typical bull market, as more stocks rise, the A/D line usually goes up. But when the A/D line moves lower while the market continues to rise, it's time to worry. This means that gains in stocks are concentrated in only a few companies.
Today, we're seeing the A/D line at all-time highs.
This is a massive green light for stocks to keep moving higher.
Until we start to see some weakness in the A/D line, you can continue to feel good about stocks.
Also, I've talked about this before… bull markets don't die with a whimper.
They die when folks are euphoric.
Think about your own interactions. Are your friends and family dominating the dinner table or the monthly cocktail party with conversations about stocks?
That's not my experience. People will strike up a conversation with me about AI stocks... But I'm not getting phone calls from long-lost friends who want to take out loans to invest in my next stock pick.
When that does happen, it'll signal that stocks are living on borrowed time. I've seen it happen time and time again at previous market tops.
While the Bank of America Bull & Bear Indicator is near highs, another sentiment indicator is not.
Results from the American Association of Individual Investors ("AAII") Investor Sentiment Survey still show that folks aren't too bullish on the stock market... with only about 37% of respondents expecting the market to go up.
There will always be a scary headline or a bearish strategist telling you to panic.
But until market breadth breaks down or unhinged euphoria takes over, stay on the train.
The best investors know that holding great businesses through the uncomfortable highs is how life-changing wealth is made.
With all of the recent hype around AI stocks, it's easier than it has been in years to invest in stocks that could end up losing you money.
And my colleague Marc Chaikin (from our corporate affiliate Chaikin Analytics) warns that a market move starting in late August could be swift and unforgiving, drawing a sharp line between true long-term winners and stocks that have been running on hype alone.
Marc's message is not to retreat to cash, but to focus on stocks with the strongest earnings foundation in AI and other breakthrough sectors. He believes this strategy could unlock multiple chances to double money this year, while helping investors avoid the hype of this year's IPO frenzy.
He'll share all the details, including the most lucrative new investment vehicle he has discovered in 50 years on Wall Street, next Tuesday.
Click here to reserve your spot today.
What We're Reading...
- Something different: Harry Potter fans force relocation of £430m undersea cable to avoid Dobby's 'grave.'
Here's to our health, wealth, and a great retirement,
Jeff Havenstein
August 12, 2026