Investors are riding high. The bull market is more than a decade old, with stocks hovering at record levels. The Dow Jones Industrial Average last Friday surpassed the milestone of 28,000 for the first time ever.

My thoughts turn to 1987, when I worked as a financial editor on Venture magazine in Manhattan. Animal spirits reigned back then, too. Stocks kept soaring to new highs.

Then, out of the blue…wham.

On October 19, global stock markets crashed. The Dow fell 508 points to 1,738.74, a one-day decline of 22.61%. The S&P 500 plummeted 20.5%, from 282.7 to 225.06.

Financial advertising dried up, pushing my employer into bankruptcy. I found myself out of a job, with a family to support, in one of the most expensive cities in the world. I eventually landed on my feet, but that fateful day didn’t earn the nickname “Black Monday” for nothing.

Here’s my point: Enjoy this long-running bull market, but don’t get complacent. It can all change in the blink of an eye.

Don’t buy stocks that you’d probably sell in a Black Monday-type panic. Methodically build a portfolio that you’d want to hold through good times and bad. Below, I’ll help you do that. First, let’s examine the backdrop.

The winning streak continues…

Four new daily record highs were achieved last week, for a total of 22 in 2019. U.S. stocks last Friday racked up their longest weekly winning streak in two years (see table).

U.S. Treasuries ended the week on a modestly lower note. The Federal Reserve is scheduled to meet December 10-11. Fed Chair Jerome Powell has suggested that the U.S. central bank will stand pat unless the economy significantly deteriorates.

A major impetus for the stock market rally during the past month has been optimism that the U.S and China will forge a trade deal. Over the weekend, Beijing announced that Chinese and U.S. negotiators had conducted a “constructive discussion” about a phase one deal.

By Monday morning, optimism over a deal was waning again as investors digested the contradictory signals. In early trading today, all three main U.S. stock indices were in the red.

My verdict? Talk of a trade deal is a lot of hot air, designed to soothe investors. A resolution is not in the offing. It never ceases to amaze me how easily reporters and analysts fall for government propaganda as if it were the truth. Until the 2020 election is behind us, you should simply regard trade tensions as “the new normal.”

Meanwhile, the global economy presents a good news/bad news scenario. For October, retail sales and factory activity in China came in weaker than expected, but euro zone gross domestic product has shown surprising signs of life. The global slowdown in manufacturing seems to have abated, for now.

In addition to (wrongly) perceived progress on the trade war, third-quarter corporate earnings have come in better than expected.

This mixed bag of conditions has kept a lid on volatility. Despite the high drama in Washington over impeachment proceedings, the chaos in London and Brussels over Brexit, and increasingly violent protests in Hong Kong, the markets have been surprisingly calm. Stocks have risen higher, but volatility has dissipated.

The stock market has not witnessed a daily move, up or down, of 1% or more in a month. The CBOE Volatility Index (VIX) has dropped near its lowest levels of the year.

The calm before the storm?

Extended periods of low volatility, as we’re experiencing now, can breed smugness. Investors could be setting themselves up for a shock.

Read This Story: Bracing for the Next Black Swan

Bull markets don’t live forever, but by the same token, it’s foolhardy to try to time a rally’s demise.

Stocks could keep rising for the rest of 2019 and into 2020. Or as I experienced during that chilly autumn day in New York in 1987, the bottom could suddenly drop out.

One of the best defensive measures you can take now is to make sure your portfolio is diversified. Sounds obvious, but like a lot of simple rules that make sense, this one often gets ignored

You should rotate toward defensive sectors that perform well during the late-stage of an economic recovery, such as utilities, real estate, and consumer staples.

Utilities stocks are classic safe havens. For reliable, high-dividend plays in the utilities sector, click here now.

Santa is checking his list…

Don’t get spooked by the impeachment headlines, the presidential rage-tweets, and the political slugfests. Focus on the hard data. This week, the docket is loaded with important economic data (see the list of reports, below).

Pay particularly close attention to housing starts (Tuesday), weekly jobless claims (Thursday), and consumer sentiment (Friday).

The housing market has wobbled lately but seems on a path for sustainable growth, driven by low unemployment, low interest rates, rising personal incomes, and a confident consumer. For these reasons, real estate stands out as an appealing sector now.

If you’re looking for a profit-making opportunity tied to real estate, read our special report by clicking here.

As always this time of year, Wall Street is hoping for a Santa Rally. If the numbers this week indicate that the employment situation is weakening, or the consumer is getting pessimistic, you can expect the market to take it badly.

Lessons from the Eighties…

The great bull market of the Reagan Era had begun in 1982, as President Reagan’s free-market policies unleashed vigor in the economy. After the malaise of the Carter years, vibrancy had returned to American capitalism. By the autumn of 1987, the markets were humming.

But leading up to the October crash, warning signs were abundant.

The economy was slowing. International tensions were worsening. Political unrest was growing in Europe. The U.S. and China were at economic loggerheads.

Tensions were flaring between East and West. Russia was newly assertive. Stocks were grossly overvalued. The strong U.S. dollar was hurting U.S. exports. The White House was dismantling financial rules designed to brake a market collapse.

The business culture insisted that investment returns surpassed all else. Passive algorithmic trading was spreading as a substitute for active stock picking. Regulators were getting suspicious that insider trading was afoot.

Corporate debt was ballooning. Future estimates for earnings were trending lower, but stocks kept rising.

Sound familiar? It should. All of those conditions are in place today. And remember, around this time last year, stocks were on the cusp of a fourth-quarter correction.

I’m not necessarily predicting that another 1987-type crash lurks around the corner. Keep riding the bull. But increase your exposure to safe havens, if you want to stay in the saddle.

John Persinos is the managing editor of Investing Daily. He also edits our premium trading service, Utility Forecaster. You can reach him at: mailbag@investingdaily.com