What Stocks Are Telling Us

The stock market is pretty much always giving us a message. It doesn’t reflect what is going on today. Rather it forecast, or attempts to at least, what is coming down the pike 6-12 months from now. However, there are instances where it shows its “displeasure” with something specific, usually an action or a statement from someone in the government.

The violent swings of today are no different. The market is selling off due to two things.

  1. It sees a slowdown in the economy that will hurt corporate earnings. This should come as no surprise. The economy is coming off a tremendous growth year where corporate earnings rose by over 20%, unemployment dropped to 3.7% while inflation stayed incredibly low. Naturally these numbers are just unsustainable!However, earnings are still expected to grow by 6-10%. That’s a great # on its own. The Fed thinks unemployment will even drop below todays current ridiculously low level and inflation is nowhere to be found. Yes the market is anticipating a slowdown, but who isn’t. Stocks typically overshoot on both the upside as well as the down, which is what’s happening now.
  2. Investors are frustrated at government ineptitude. We were hit with three blunders in one week by our illustrious leaders. 

    a) The Federal Reserve – Their announcement after their meeting that they are sticking to a set schedule of interest rate hikes, rather than a more pragmatic wait and see approach sent stocks reeling. The S&P 500 is down almost 10% from that statement alone.

    b) Two days later, President Tweet… tweeted that he wanted to fire Fed Governor Powell, even though that is not legal option. Even though we’ve learned to take his messages with a grain of salt, that was a bit much. That overshot of power just increased the nervousness on Wall Street.

    c) Two days later, Treasury Secretary Mnuchin made a public statement that he was talking to major banks and they had ample liquidly. That may seem innocuous but all it did is raise the question that “What, we have a liquidity problem”?

All 3 of these bonehead moves pushed what was likely going to be a garden variety correction into a deeper 20% correction.

Many are calling this a Bear Market because we have had a 20% drop. Provided that no catastrophe is on the horizon, which I do not see, the market is likely in a bottoming process with the worst well behind us. If earnings are good, which will be released in a couple of weeks, confidence will be restored.

With the new year upon us, take this opportunity to solidify your retirement master plan:

  1. Do the planning in order to tell your money what to do or it will do the wrong thing.
  2. Take advantage of all the investment tax strategies you are entitled to
  3. Invest your money “Tactically”, never buy-and-hold to deliver returns while managing risk
  4. Have an asset protection plan firmly in place like our Wealthguard, to help protect you the next time the market decides to crash.

These are the things we help our clients with every day. Give me a call if we can help.

Happy New Year!

Cheers -Keith
916-715-4607

Smart Money Newsletter

Written By: Keith Springer

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