Is this bull market getting scary? Financial advisors weigh in

Excuse us for asking, but, um, is this rampaging bull market scaring anybody out there?

The S&P 500 is up 23 percent so far in 2024 after a 26 percent gain in 2023. Meanwhile, the S&P 500 has hit 47 all-time highs in 2024.

Talk about hot as Hades.

At the same time, Wall Street analysts are not even seeing the ghost of a bear market. A Goldman Sachs report from earlier this month predicted the S&P 500 will reach 6,000 by the end of this year and 6,300 a year from now, up from 5740 at last check. Not to be outdone, UBS said last week that the economic "no-landing" scenario could drive the S&P 500 to 6,600 in 2025.

Elsewhere, US investor sentiment continues to shade overwhelmingly bullish with 39.5 percent of investors believing the market will head higher in the next six months, according to the American Association of Individual Investors (AAII). That compares to 34.1 percent last year and higher than the long-term average of 37.5 percent.

With all this in mind and Halloween in the air, InvestmentNews informally surveyed some of our favorite financial advisors to find out what – if anything - frightens them most about the current bull market.

What scares Tom Graff, chief investment officer at Facet, is the fact that recessions can appear suddenly "like the killer in a horror flick jumping out from the darkness.” And while he is not expecting a recession any time soon, he remains well aware that economic conditions can change in a flash.

“That's why we have some amount of defense built into our portfolios right now. You want to have enough defense to weather a recession in a reasonable way, but not so much that you fall behind if the economy continues to chug along,” said Graff.

Dr. Ron Piccinini, head of investment research at Amplify Technology, loves a good bull market more than he loves trick or treating. That’s because his “clients get richer.” And no, he’s not scared of the stock market. It’s what's going on in the bond market that keeps him up at night.

“I am not scared about a bull market, but what I am scared about is the potential for long rates to rise rapidly next year, which could create a lot of problems both in equity and real estate markets,” said Piccinini, who holds a sizable position in gold to guard against such a spooky scenario.

Said Christopher P. Davis, partner at Hudson Value Partners: "The looming specter of a second bout of inflation."

Ooh! That's scary indeed! Especially when we all though the Fed put a stake through the heart of higher prices!

Brian Glenn, chief investment officer at Premier Path Wealth Partners, is unnerved by rising PIK payments (payment-in-kind) as a portion of total interest earned for private credit funds.

“Private credit has infused massive amounts of capital into the middle market, both public and private companies. Compounding debt balances by using the PIK feature instead of cash paying interest – at a time when interest rates are high – can create a snowball effect,” said Glenn. 

He adds that some notable private credit funds are seeing non-cash or PIK payments exceed 15 percent of reported income. 

Theodore W. Brooks, chief investment strategist at Nordwand Capital, says his immediate worry is that crowded long positions in popular equities like the so-called Magnificent 7 run into trouble and cause a rush to the exits. 

“We’re seeing a small version of that with some high-fliers this week,” said Brooks. “If it continues or widens we could easily see a correction in a market that’s been overly hot.” 

Brooks’ longer-term worry is that employment market heats up and puts pressure on wages and services inflation at the same time the Fed is cutting rates.  He calls that a “bigger economic and market risk than just a trading correction, but bears watching nonetheless.” 

Moving on, Danielle Darling, LPL financial advisor and certified divorce financial analyst at Resource One Advisors, seems to be anxious about the ghost in the AI machine.

“My biggest concern is that this bull market may be inflating with an AI bubble, with valuations outpacing realistic growth and setting investors up for a correction if expectations aren’t met,” said Darling.

Trey Davis, director of financial planning at MFA Wealth, is anxious about rising US debt levels, noting that the national debt has surged significantly, and the costs of servicing this debt are escalating due to higher interest rates.

“With debt-to-GDP ratios at historical highs, any further increases in interest rates could lead to a substantial rise in debt servicing costs. This strain may crowd out other government spending or necessitate tax increases, both of which could dampen economic growth,” said Davis, adding that the sheer size of the debt may deter foreign investment and place pressure on the dollar, potentially adding further volatility to the market.

Brian Scott, LPL financial advisor and founder of Elevánt Wealth, is scared investors will underestimate the bull market by being too conservative with longer-term assets.

“Allowing emotions, such as fear, to dictate investment decisions rarely works out to the long-term benefit of the investor,” said Scott.

Along similar lines, Wheeler Crowley, co-founder and financial advisor at CoFi Advisors, is scared that too many people might not be taking it seriously and are missing out on a great opportunity.

“We have to stop our fears from getting the best of us. Our imagination is always scarier than whatever it was that caused that weird scraping sound or that loud bump in the night,” said Mr. Crowley. (Yes, you read that correctly!)