In the last year and a half, the stock market has seen significant swings in both directions. The numbers are quite dramatic:
November 2016 – Dow 19,000
January 2017 – Dow 20,000
February – Dow 21,000
August – Dow 22,000
October – Dow 23,000
November – Dow 24,000
January 2018 – Dow 25,000
February – Dow 26,000
March – Dow 24,000 (down)
April 2nd – Dow 23,400 (down)
The downward movement of late is not a straight line down, but the market instead has seen substantial sell-offs with investors coming back in 2-3 days later. It is quite the opposite of 2008, if that is the apt comparison, where the market saw a long, slow draw down from October 2007 through the bottom of March 2009. The dramatic nature of the one day sell-offs and the Lehman Brother collapse seem to capture the public imagination, but in reality, the structural problems of bad lending standards and bad real estate debt took years to accumulate, and therefore took a couple of years to unwind.
What is comparable today, and how should it impact your decision to get in, or out, of the stock market?
Government debt and money printing has created a bubble in the bond mark and in the dollar trade. The market recovery from 2009 to date, which has seen the Dow grow 300% from the bottom, was basically purchased by the previous administration through low interest rates, quantitative easing, money printing, and trillion-dollar deficits. It was artificial, not driven by the natural business cycle of the free market – supply, demand, and innovation. The amount of debt and stimulus used by the government to keep asset prices afloat for almost a decade – as opposed to free market investor stock purchases driven by corporate profits and new market players – will be a lot to unwind when the selling begins. Has it already started?
Is this now the time to get in, or get out, of the stock market?
I. Time to get IN to the stock market:
- If you’re young and just getting started – yes, could be time to get in! Utilizing a retirement plan through work, such a 401K, is good planning for millennials and 20-somethings entering the workforce. Taking some money and investing in stocks you believe in, or that a competent advisor would recommend, is the right place to start. Market sell-offs can be buying opportunities, and if the sell-off becomes a long-term bear market, you still have time to recover.
- Trump Trade and the Trump Bump has been – and will be – good for stocks. Tax Reform has been passed … manufacturing is up … imports up … exports are up … hiring is up … unemployment is down … all of the good economic data suggests profits will be up. As Larry Kudlow has always said, “Profits are the mother’s milk for stocks.”
- Speaking of Larry Kudlow… The former Reagan economic advisor shares the late Gipper’s knack for optimistic rhetoric. His nomination as Director of the National Economic Council ensures a US commitment to strong dollar policies, fair trade, and daily doses of “3-4%” GDP growth talk. Kudlow’s optimism helps buoy markets, as his TV appearances touting US growth potential usually increases the daily gains in the Dow.
II. Time to get OUT of the market:
- The trend is your friend. Wild volatility … massive declines in the market … the stock market in 2018 is down roughly 1.5% and has seen some of the worst days in stock market history this year so far. Three of the 5 worst have occurred in 2018, and the two worst declines in market history occurred in the month of February alone. The trend is your friend, and the trend points downward. As Eddie Murphy once said in his stand-up routine regarding haunted houses – GET OUT!
- Geo-political risk factors and the potential for a ‘black swan’ event. “This time is different.” Really? Yes, the market has had an extraordinary run, but if you made money in the market, should you leave your winnings on the table? Is that what history has taught you? Trade wars with China … real war in the south China sea, Korea, and Taiwan … Russia threatening across the Middle East and Europe … US government debt … the idea that there is not an event out there which could trigger a massive sell-off is simply untenable. There is more geo-strategic risk today than there has been since 1939 – and if that risk happens, it will impact markets.
- Need to unwind the inflated stimulus gains. Market gains since the election of Trump have been the traditional, free market, optimism-based, and profit driven version of market acceleration. However, we reached these highs on the market during a period of significant economic stagnation and government regulation. The stock market grew primarily through asset appreciation from money printing – in other words, stocks went up from trades based on borrowed money … gargantuan debt. You can have an underlying economy performing well while still seeing stocks move into bear territory. We have long reported on the decoupling been Wall Street and Main Street. And that is what we should expect now or in the near future – unwinding the debt positions of government, the Feds and government supported banks. When this happens, markets will correct … big time.
To get it in or to get out? The answer is yes.
Yes, get in if you’re young. You need a good advisor who can provide proper advice, guidance, and knowledge, of the potential buying opportunities in the stock market.
Yes, get out if you’re a mature saver and investor, over the age of 50, with a portfolio already benefiting from the huge run up in the market. Now is the time to listen to Stuart Varney, of the FOX Business Network. At a minimum, you should “have 50% or more of your money out of the market.” and in a place that is safe and protected.
That is exactly what our expert advisors can do for you. Call today and receive a financial security review at not cost and no obligation. 877-912-1919