Wow, the stock market is starting off 2018 with a bang. The S&P 500 index increased over 6% in less than a month and it is not slowing down. Investors are euphoric. Everyone is sure the stock market will keep going up and we don’t want to miss out. I’m not immune to this feeling. I just maxed out our 2018 Roth IRA contributions ($11,000) and put it all in the US stock market. The S&P 500 index will push through 3,000 this year for sure. Financial Samurai said this is the final stages of a blowoff and I completely agree. Let’s see what the blowoff stage is about and how we can prepare for it.
What is a Stock Market Blowoff?
If you’re a new investor, you probably haven’t gone through a market blowoff before. This final phase of the bull market is characterized by a steep increase in price follow by a steep drop in price and volume. In the mania phase, investors feel exuberant about stocks and they don’t think they can lose. Nobody knows where the top is, though.
To me, this feels like 1999. Everything is going up and everyone keeps talking about the stock market. I went out to lunch with Mrs. RB40 last week and I overheard 2 conversations about stocks. Everything is just going too well so investors are very bullish. Check out the steep rise of the S&P 500 index over the last 2 months. Here are some of the reasons why the stock market is going gangbusters.
The US and global economy are very healthy. Consumers are buying and almost every economy grew at a healthy pace in 2017. US unemployment rate is at its lowest point since 2000. Consumers feel confident about their income so they aren’t afraid