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Did the "Market" Just Hit An All-Time High?

Yesterday (10/29/2019), we learned that the S&P 500 hit 3,047.87. In the game of telephone that is financial journalism, investors may hear this reported as “Markets Hit All-Time Highs.” And so, with “markets” hitting all-time highs, I think it is a good time to discuss one of my stylistic quirks-- the fact that I like to put quotation marks around the term “markets.”  

It’s actually pretty simple: generally, when people talk about the “market” or “markets” they mean large-cap U.S. stocks as represented by the Dow Jones Industrial Average or the S&P 500. These indices track big companies-- from Amazon to Zoetis-- and while they do a good job reflecting the U.S. stock market broadly, they are still only about 80% of the U.S. market by market capitalization (market cap equals the value of outstanding shares of a company). Moreover, the U.S. stock market isn’t the only game in the world: U.S. stocks now represent only 40 (or so)% of the total market capitalization worldwide. Consequently, when the news says “Markets have hit all-time highs”-- they are really only talking about less than half of the market. 

Case in point: here is a chart for the iShares MSCI EAFE ETF, which has exposure to a broad range of companies in Europe, Australia, Asia, and the Far East. The EAFE is a long way still from the highs set in 2007:

In many cases, investors will ask what should we be doing as “markets” hit all-time highs, it is a good reminder that “markets” haven’t-- a segment of the U.S. market has. This may sound pedantic (Editor’s note: pedant = a person who is excessively concerned with minor details and rules or with displaying academic learning, or other words, the absolute definition of Keith Poniewaz), but investors should remember that their portfolio is diversified into many markets to protect them should the high in the “markets” be a bubble or should it continue forward.   

Keith Poniewaz and Clint Walkner