After a terrible December and a terrific January, where does the market go from here?

SMI executive editor Mark Biller joined hosts Rob West and Steve Moore to discuss that yesterday on MoneyWise Live.

To listen, click the play button below — or, if you prefer, scroll down for a transcript. (For more radio appearances by members of the SMI team, visit our Resources page.)

MoneyWise Live airs daily on Moody Radio at 4:00 p.m. ET/3:00 CT.

To ask a question on a future program, call 1-800-525-7000 and mention you have a question for either Mark Biller or Matt Bell of Sound Mind Investing.


Steve Moore:  How much longer can this bull market hang on? Is the big bad bear just around the corner? No one knows for sure, but Mark Biller of Sound Mind Investing can at least tell us where we are now and that's a pretty good start. He joins our host Rob West next. I'm Steve Moore. Welcome to MoneyWise Live.

Well, Rob. I know one thing. The last couple of months have made me glad I'm not a day trader!

Rob West:  That's right, Steve. The high volatility has been an abject lesson in why we don't want to try to time the market. But we do make adjustments to our portfolio from time to time based on new information — so we called in the big guns. Mark Biller is here to help us get a better understanding of things. Mark, we are so thrilled to have you. Welcome back to MoneyWise Live.

Mark Biller:  Thanks, guys. Good to be here.

Rob West:  Mark, I always look forward to the day each month when I received my Sound Mind Investing newsletter. And in the latest edition, you have an article titled After the January Rebound, What's the Market's Current Status? Why don't you begin by just recapping for us the last few months?

Mark Biller:  Yeah, sure. The recent story really starts about five months ago in late September. That's when the stock market hit its latest all-time high. And then from there, as we got into the last quarter of 2018 stock market started getting rocky — and stocks were falling and then recovering in both October and November. Then finally, in December, the bottom sort of fell out. Stocks fell about 15% additional from where they had already fallen over just a few weeks, and that's when investors started to panic a little bit.

It really looked bad going into early January, too — the selling was picking up again. But, as we talked briefly about last month, that's when the Fed chairman stepped up on January 4th and reassured the markets that the Fed kind of had their back — and the whole market dynamic just turned on a dime. From that point, stocks bounced back really strongly. They finished January up over 8%, which was the strongest January start to a year since 1987.

Rob West:  Yeah. We felt a little whipsawed, right? Because December — in fact, the fourth quarter — was one of the worst, and now we start January with one of the best! Uh, certainly makes the case, Mark, for why we should be long-term investors and not moving with the whims of the market, right?

Mark Biller:  Yeah, that's absolutely right. It's a tough thing to go that far down in that far back up if you're jumping all the way in and all the way out. You really did get whipsawed.

Rob West:  Okay. Well, setting aside the specifics of what the market's doing right now, what are the things you were concerned about as you wrote the article?

Mark Biller:  Sure. And it is important to point out the article is a few weeks old at this point and we've gotten some more information, but the most important point in that article still stands — and will, regardless of whether the market goes up a few percent or down a few more percent from here. And that simply is that high valuations in the market equals high risk.

And so the thing to understand there — our view here at Sound Mind Investing — is that investors really should be cautious toward stocks at this point in the cycle because we've had this great bull market, but we're 10 years into it at this point. Valuations have gotten pretty expensive when compared to historical measures. Really, the only comparables for the long-term valuations we have today are from the late 1990s. And if you were an investor 20 years ago at that point, that would make you a little nervous — because the last time stocks were valued this highly, we had a couple of significant bear markets over the next decade, and actually, stock returns over that next 10 year period were slightly negative.

So the article just kinda explains that even after this recent correction we had late last year, there are some of these good valuation methods that are projecting very mediocre, flattish kind of returns over the next 10 years. 

Rob West:  You were talking before the break about the fact that we're 10 years into this bull market and that high valuations equal high risk and perhaps investors should be more cautious towards stocks at this point in the market cycle — but how does that apply to the person on Main Street, if you will, who's saying, "What does that mean for me? That that wasn't something I put in my projections for retirement! Should I sell and go to cash?" I mean, how do we apply this thinking?

Mark Biller:  Sure. And a lot of it does depend of course on the stage of the person's life that we're talking about. So for someone in their 30s, 40, even early 50s that has a decade or multiple decades of investing ahead of them, a lot of this stuff really should just be kind of tuned out because you're in it for the long haul. There's really no need to be making big adjustments. But for the person who is looking at retiring maybe within the next five years, the next 10 years, what the market is likely to do over that intermediate 5- to 10-year timeframe that can be very significant in their planning. And that's really, probably, the focus of this kind of conversation.

Rob West:  But there's more than one way for a market to go flat like you were describing. Tell us what that means, and perhaps even an example.

Mark Biller:  Sure. So let's say for the sake of argument that these long-term projections that I was talking about earlier, that the market is going to average roughly a 1%-return-per-year-over-the-next-decade kind of a return. Let's say that those are accurate. Maybe they will be, maybe they won't be. Well, there are a couple of paths we could get to that final result by taking. One would be for the market to just earn 1% every year for the next 10 years. But you could also get to that same overall result by having a big downturn followed by a rebound.

And that's what we're concerned about because that's been the pattern that we've seen twice now in the last 20 years or so — with the big bear markets in 2000 to 2002, after the 90s big bull run, and then the same thing last decade, a big bull-market run followed by another big bear market. So we just want people to be aware that, from here, that is certainly a possibility.

Rob West:  Mark, we are about out of time, put a bow on the article we've been discussing today. Where should our listeners go from here as they think about the market and their investments?

Mark Biller:  Yeah, I think the big picture idea here is if you already have a long-term investing plan, stick to it. You know there's going to be market volatility. You don't want to jump in and out every time the market goes up or down. And if you don't have a plan that takes into account the idea that we may have a significant bear market sometime in the next few years, you really need one, because that's what's gonna keep you from making bad decisions when the markets get emotional.

And if you need help figuring out what a good defensive plan would look like, then a good starting point for that is to take a few minutes at and read about the couple of defensive strategies we have. They'll at least give you an idea of the types of things you should be thinking about.

Steve Moore: We encourage you to check it out. These are men and women who know and love the Lord. They have a tremendous track record — and most important, they explain things in a way that you can understand them, which is really vital. So our thanks to Mark Biller for joining us. Stick around. More Moneywise Live after this.