Investors feeling upbeat due to recent gains in previously battered sectors should keep their portfolios diversified and their investment strategies clear, The Wall Street Journal reports.
As much as investors might want to proclaim the end of the bear market, they should not throw caution to the wind, according to the Journal. Although both the S&P 500 and the Nasdaq Composite have risen more than 21% over the past three months, investors should consider historical market returns, the economy and stock valuations, the paper reports.
In a recent Online Journal survey of 54 economists, they predicted economic growth would remain moderate through the first half of next year. Further, stocks in the S&P 500 have been trading at 22 times earnings over the past 12 months, still well above stocks historic 15 times earnings.
Finally, looking at the performance of the market following similar two-month gains as strong as this past April and May, the Journal found that the S&P 500 has risen an average of just 1% over the next quarter and 4.5% over the next six months.
"Enjoy this, but dont inhale too deeply," Don Cassidy, a senior analyst with Lipper, told the Journal. "If you use this run-up as a signal to reverse your diversification efforts, that would be really unfortunate."