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Market Analysis: More Good News than Concern, Take a Breath

market-volatilityMarket analysis is risky, but let’s take a deep dive.  Today, the market dropped 500 points, after a shaky several weeks.  Accordingly, everyone with money in bonds and equities, from 401k and SEP holders to pension funds, is asking:  Is this just a technology stock pull back, based on fear of the trade war disrupting their supply chain, or is something big afoot?  The answer, take a deep breath.

Here is the truth.  The underlying US economy is literally strongest in the world – bar none.  The US economy is strongest in half a century, highest year over year growth rate and lowest unemployment numbers since 1969, and across virtually every demographic.  We have rising wage growth (finally), minimal inflation, and gradual normalization of Federal Reserve interest rates, after a decade of the Fed propping up the stock market with bond buying, so called “quantitative easing.”  So, under the surface, all is strong.

What about in the near term, that is, on the surface?  Well, take another deep breath.  Yes, we are in a trade kerfuffle with China on long-uncorrected and objectively unfair trade practices, including China’s manipulation of currency and the World Trade Organization.  Yes, the President placed and threatened tariffs on Chinese goods.

But reality:  China’s economy is measurably slowing, even as China invests globally.  They need us more than we need them.  The goal has never been – and never will be – a perpetual trade war, but a renegotiated bilateral agreement with China, a rebalancing of the trade relationship.  That may come in weeks or months, and when equipoise is reached with China, watch markets all pop!

Note that the same can be said for the newly renegotiated trade arrangements with Mexico and Canada, call it NATFA II.  Reality is this:  That draft agreement helps US automobile manufacturers, streamlines and makes more mutual trade relations, and shaves off costly side provisions.  Yes, it is not done and no it is not as big as the China deal, but when finalized, watch markets react favorably again.

Now go to the Fed’s gradual selling of bonds and raising of interest rates.  The truth is that both of these developments, while causing the stock market to temporarily quiver, are long-term wins for stock and bond holders, pensioners and 401K holders, including AMAC members.  These moves help stabilize or “normalize” an underlying US economy, deterring or forestalling future recessions (since rates can again be lowered if necessary to spur growth).  The move is responsible, creates predictability, and opens the door to future Federal Reserve flexibility, which markets ultimately like.

What about other uncertainties – affecting the stock market?  For example, Britain’s uncertainty over whether and how to manage their next “Brexit” step – Do they vote for a British Prime Minister’s compromise plan (introduced this week), revert to staying in the EU, or jump ship entirely next year?  The answer is, likely grumbling acceptance of the unpopular compromise.  But even if the other two outcomes prevailed, it simply resets trade rules – and the world goes on.

What about uncertainty surrounding other issues, permanence of tax cuts after 2025, falling price of oil, denuclearizing North Korea, immigration from Central America, ossifying Mueller Probe, and a divided Congress?   The answer is:  None of these issues is particularly new, and most are being proactively addressed.   Markets like advance thinking.

Long term, the only big and unresolved issue – since there will, in reality, be no impeachment of a President (despite posturing by new US House members), no imminent recession (despite selective Democrats relishing the chance to run on one in 2020), and recovery in technology and supply chain sectors – is this:  What about the burgeoning national debt?

If financial markets are uneasy about anything, it is our nation’s mounting debt – and there is even hope in that area, since visibly mounting debt points the new Congress toward work that should get done in a bipartisan way, toward creating conditions for solvency and long-term fiscal stability by middle of the next decade.

So, a third deep breath.  Living in the world’s strongest economy, with the best US numbers in half a century, at a time of rebalancing trade, elevated economic and security respect for the United States, normalizing interest rates, minimal inflation, lower energy costs, less regulation, talk of an infrastructure package, possible entitlement reform, and higher national confidence – not to mention being led by a strong president – is probably good news.  Let the market fluctuate.  It always has.  And enjoy your Thanksgiving, in America!

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Life is always going to have uncertainties. Always has, always will be the case. So it is pointless and unrealistic for people to wait for some mythical period of time when everything is only “good times”. What we are seeing now is simply a result of two issues on the mind of most professional traders and investors and should not be construed as “the end of the world” that the perma bears or gold nuts are always hyping. The current downturn in the stock market is simply the market re-pricing risk due to two factors: 1) The Democrats regained control of the House, so from a legislative perspective, no new business friendly or pro-growth tax cuts for those of us folks that actually pay taxes in this country will be passed for at least the next two years. That of course has a negative effect on company earnings and the… Read more »

Dan W.

Buy, Mortimer, Buy…..(BUT keep your short-term money out of the market).