The last few weeks we have discussed geopolitical chaos and their impact on the market. This week is no different. What is unique about the era we are living through is that social media and 24-hour news cycles have not made things more transparent, but in fact quite the opposite – more confusing and harder to understand.
But what is not hard to understand is that you can manipulate the market with government intervention, but ultimately, what goes up must come down. At some point, supply will exceed demand, and “risk appetites” become “risk aversion.”
Three major variables remain in play that can hurt US markets. Everyone knows there are not just three variables impacting markets, and many other positive events remain in place. But when considering safety of principal once you have a sizable portfolio to protect, any variable that increases market downside risk has to be weighed heavily.
I. 3 Major Variables That Will Put Downward Pressure on Stocks:
- “Trade War with China is brewing”: This week stocks were weakened by threats from President Trump to levy 10% tariffs on more than $200 billion in Chinese imports, substantially upping the ante from the original 10% tariff on $50 billion in Chinese imports. One US trade official stated in Reuters that “China was vastly underestimating the President’s belief in stopping unfair trade practices.”
- “Tech regulations are tightening”: The FANG’s—Facebook, Amazon, Netflix and Google—have driven the market for several years now. Many analysts believe things are about to change. While the current administration has regularly cut regulations across the board and have been credited with much of the deregulation helping with economic expansion, that has not been the case for the tech stocks. Aside from record earnings, there is an expected flurry of regulatory action with the tech giants, especially with the most recent issues regarding personal privacy. Many are advising caution for the investing public.
- “Political uncertainty here and abroad”: Southern border crisis … rising gas prices … German government in turmoil … Italians voting for conservative government … failed states in Latin America … aside from the trade wars listed above, the world in chaos remains a constant risk for markets here in the US. Portfolio’s tied to US multi-nationals run the risk of quick downturns, but most likely, stocks will continue to fee downward pressure thanks to a combination of all of these events.
Stock prices have been immune to geo-political events for years now … or have they?
Fourth quarter of 2015 was particularly gruesome for markets thanks to Chinese currency manipulation. There were major drops in the spring of 2010, the fall of 2011 and the fall of 2013 … we need not revisit the three major corrections over the last 20 years as examples we have discussed so many times.
There are some positive trends. We have mentioned them previously and they include things like extraordinary earnings reports, full employment, and record revenue. The market, while having a tough week, remains at unprecedented highs!
But when you review the data and take Fed rate hikes into account, there is significant downward pressure on stocks. It would also be wise for investors to consider principal protection as a responsive strategy to such pressure. The fact that there is so much news pointing in both directions confirms the point: we don’t know when to grab the falling knife. Trying to time the market has a predictable outcome, and it is usually bad.
Call now to speak with a Ty J. Young advisor about protecting your portfolio from market losses. 877-912-1919