China Trade War Brings Awaited Correction
Stocks took it last week following what seemed like the collapse of U.S. China trade talks. The headline brought the averages down over 5% in two short days, causing a lot of headaches and heart attacks for investors.
Since then however, stocks have recovered strongly leading me to believe this is going to be one of those years with many corrections of 5-7%, but still with a strong uptrend which is normal, just different from what we’re used to.
I will say that having been in this business for over 30 years, I much prefer the short lived albeit severe corrections over the old fashioned long drawn out painful ones. The 5% pullbacks sometimes took months to grind through. I’ll take a quick 2 dayer anytime, even if it is harder to digest in the moment.
The key is to have confidence in your Master Financial Plan. Doing so allows your portfolio to be invested correctly, properly stress-tested for every scenario including bull markets, bear markets, corrections, crashes, wars etc. Of course, that is just the 2nd leg of the investment retirement stool, tactical asset management, that is designed to get the best returns with the least risk possible.
The first leg obviously is proper planning. So few people actually do suitable planning to make sure they never run out of money in retirement, and that they are taking advantage of forward looking investment tax strategies. The 3rd leg is asset protection, such as Wealthguard.
These are things we do for our clients every day.
Back to what the hell is going on with this market.
There has been four major things directly affecting this market and 3 of the 4 have been exceptional. The Federal Reserve decision on the direction of interest rates (and their incompetence in relaying the message properly to investors), the health of the economy, corporate earnings, and the trade war with China.
After a tumultuous December, where the Fed’s ineptness on interest rate direction caused the S&P 500 to drop by over 20% (an official bear market and a reset of the current bull market), they have come to their senses and slashed their rate hike forecast for this year. Now popular perception is that there will be at least one or possible two rate decreases this year. This is a huge positive.
The other big positive has been corporate earnings, which came in well above expectations. With both GDP and payroll increases beating consensus, the economy is very much still on a positive track.
That’s 3 out of 4 and if we get a China deal, which I think will happen, then we’d have a superfecta.
Overall, the investment climate looks pretty good. However, this is no time to throw caution to the wind. There are many threats on the horizon for investors, especially those retired or getting close, and strong risk management is paramount.
One last word: be careful not to get nervous and make financial decisions due to headlines. We are in that no-man’s-land time I have dubbed the pre/post earnings nap period. While earnings are being released, attention is focused on them, and stocks react accordingly. Once earning’s season is over (now) we have about 6 weeks before earnings come out again, so investors’ attention is erroneously focused on world events. Don’t let that happen to you. Stay focused and trust your plan.