How to tame the bull market

American markets are at all-time highs and the economy is heating up. Time to load up on U.S. stocks?

Who didn’t get even a little bit excited when, early in March, the Dow Jones Industrial Average hit a new high of 14,222, beating the previous high of 14,164 in October 2007? After years of recession and mediocre-at-best investment returns, market watchers were feeling pretty good. Watching the Dow push past the psychological barrier of 14,000 was akin to a red flag: it signalled the bull market was back.

While Canadian markets have been relatively soft, optimism abounds south of the border. A recovering U.S. real estate market, new jobs and a step back from the fiscal cliff are all signals of a growing economy, say financial analysts. So is it time to load up on U.S. stocks?

“It’s all noise,” says Murray Leith, VP and director of research at investment firm Odlum Brown. Leith says economic growth is not a good predictor of how well the markets do. “If growth is all that matters, then the Chinese stock market wouldn’t be down more than 55% from its high in late 2006.”

This isn’t to say Leith is bearish on American markets. In the U.S. right now, you can find well-priced equities, says Leith. For instance, U.S. bank stocks are good buys. Not that Canadian banks are a bad bet, but “there’s more room for growth at U.S. banks so these equities offer better value.” But Leith is quick to point out a fast way to lose money—by “buying high and selling low”—is to slavishly follow stock tips. “You need to make investment decisions based on the underlying fundamentals of a company, not on rear-view speculation.”

So what strategy should you adopt right now? Focus on your investment plan that lays out your long-term goals and asset mix, says Tom Bradley, president of Steadyhand, a no-load mutual fund company. “Don’t time the market. Stick to your long-term plan. That’s what works.”

Still, anyone whose stock portfolio has too much in Canadian equities may benefit from rebalancing, Bradley says. Consider leaving a third in Canadian stocks, a third in international stocks and a third in the rising American markets.