United Methodist Foundation of Indiana

Where are we in the market cycle? January 20, 2011

As any student of investments knows, markets move in cycles. The problem is it is very difficult to know how long, or how far, a particular market cycle will run. From the fall of 2007 through early spring of 2009 we experienced a devastating bear market causing many investors to lose nearly half their invested net worth. Since early March 2009 we have experienced excellent returns. Unfortunately, the 2007-2009 bear market resulted in a psychological block for many investors preventing them from enjoying the recent bull market. A broad segment of the public have such a vivid memory of the pain from those losses that they are still reluctant to get back into the market. This is similar to what happened in the 1930′s following the Great Depression. Many were so fearful of stock investments that they completely avoided stocks and missed out on some great returns.

Some are now questioning how long the current bull market will run or how high the market may go before shifting to the next bear market. If only there were some way to predict this with some accuracy. That is not possible because there are so many factors at work which impact the markets.

The year 2010 produced very nice returns. However, it was a rollercoaster year with some very good months and very bad months. About half the 2010 returns occurred in the month of December.  Like it or not, market volatility seems to be here to stay. The days of a long steady upward market seems to be the thing of dreams or long ago memories.

It is important for most investors to stay focused on the long term and ignore the short term volatility. Yes that is very hard! It is easy to look at each dip in the market and wonder if that is the start of the next bear market. The big question today is, where are we in the current bull market cycle?

From my reading, there seems to be less diversity of opinion as to where the markets may go in 2011. The industrial economy has gathered some momentum, the emerging markets are surging, companies are flush with cash, and profits look set to rise decently again. Oh yes, you can always read an article predicting run-away inflation, or some other issue that could bring about the next bear market very soon. I suggest you ignore the authors that seem to predict the extremes and follow the thinking of the majority of economists and prognosticators. I sense more consensus that the markets will behave in 2011 similar to the way they did in 2010. That is, we are likely to end the year with the DOW producing 10% or better performance. I think most would agree there will be bumps in the road getting there. A long slow recovery is much better than a quick recovery that may not last. We clearly seem to be in the midst of a very slow, and probably long, economic and market recovery. This slow recovery should be good for investors even though it is not good for those who are unemployed or underemployed.

So, having said all that, where are we in the market. It appears to me we are in the midst of a bull market that will likely continue an upward momentum for the near future, at least through 2011, and probably beyond. If you are sitting on the sidelines in cash waiting for market stability before investing, you may miss out on significant returns. By the time the market looks stable, it will likely be near its peak. Those on the sidelines have already missed a major recovery.

Need Help?

If your church would like assistance in developing an investment strategy, reviewing your current investments, or exploring other investment options, we would be happy consult with your decision makers to assist. Our Foundation provides these services free of charge to United Methodist churches throughout Indiana. Just call me or send me an e mail.

Happy Investing!

Royce

Royce L. Ruckman, CPA, AEP

Director of Investment Services

United Methodist Foundation of Indiana, Inc.

1001 N. Western Ave., Suite D, Marion, IN 46952

toll free 866-669-2327,  local 765-664-2327,

cell 765-661-6804

e mail rruckman@niumf.org

Visit our web site at http://www.niumf.org