A buoyant U.S. jobs report and a reinforced commitment by central bankers to hold interest rates low pushed the Dow Jones Industrial Average over 17,000 for the first time today, providing new energy to a stratospheric bull market that financial advisers are treating with ambivalence.
In an abbreviated pre-holiday session, the Dow closed at 17,067.49, up 0.54% on the day. Both the Nasdaq and the S&P 500 were also up, as investors entered the third quarter with apparently renewed optimism about the strength of a bull market that is now five years old. In that time, the S&P 500 is up nearly 190%.
“The market is on pace for another double-digit gain [this year] — I think that was pretty shocking to people,” John Russel “Rusty” Vanneman, chief investment officer for CLS Investments, said earlier this week. “You would have to think we're in the last innings of the bull market.”
The Dow broke through the trading threshold after the U.S. Labor Department said nonfarm employment grew by 288,000 in June and that the unemployment rate fell to 6.1%, its lowest point since September 2008. The S&P 500 was trading around 1985, also a record-high for that stock index, which is up about 8% this year.
What is good news for most is worrisome for financial advisers, who fear that their clients might be too anxious to rush into the market just as it might be peaking.
“Bullish sentiment seems to be a little bit overdone right now,” said Dan McElwee, executive vice president of Ventura Wealth Management. “I'm more concerned about downside [risk] over upside because the market is looking frothy.”
Nonetheless, after years on the sidelines, Mr. McElwee says clients are increasingly looking to put cash into rallying markets.
“Everyone wants 2013 returns in 2014,” Mr. McElwee said, referencing the nearly 30% gain of the S&P 500 last year. “Clients are bringing their checkbooks to invest; they're not bringing in existing accounts. People are now just getting off the sidelines so we have to caution people about not getting too aggressive when the market seems extended in the short term.”
Adviser E. Michael McGervey said the most common question about the markets he gets from clients is, “How long is the market going to continue to run?”
What they don't ask about — generally — is something that takes up a lot of Mr. McGervey's time: how to structure bond portfolios for when interest rates rise.
Central bankers in Europe and the United States reaffirmed their commitment this week to keeping the interest rates they control at historic lows in an effort to stimulate developed economies recovering from the 2008-09 recession.
The issue remains off the radar for Mr. McGervey's clients until he brings the subject up in meetings.
“You have to remind them that this is not an exercise of trying to time the market — it's following a rigorous discipline week after week to make sure that we're staying true to our process,” he said.