Displaying items by tag: correction

(New York)

Yesterday was a full-on panic in markets. Shares plunged across the board from a broad mix of worries about rates, earnings, the economy, and trade war. The Nasdaq was hit hardest, falling 4.4% into correction territory. Losses in the Dow and S&P 500 were enough to eliminate all gains for the year. Earnings have continued to be strong, but it has not helped support stocks much, if at all. The S&P 500 is now 9.4% off its 52-week high.

FINSUM: Our own view on stocks is that this will be a temporary hiccup and equities will steady themselves soon. Given that earnings growth is strong and the economy is still very healthy, it is hard to imagine a bear market starting.

(New York)

That is quite a counterintuitive headline, but in an odd way, it could not be more true. Bloomberg has put out a piece, which echoes many advisors, that the current bull market could actually end up hurting many retirees. The reason why is that many have experienced hefty gains in the last decade and feel comfortable retiring. However, after such a sharp run higher, the market is likely to experience a steep correction. For retirees seeking to steadily withdraw money from their accounts, this could pose a major problem, as a drop in the market could cause such significant damage to portfolio value that even outperformance in subsequent years may not make up for it.

FINSUM: This is a valuable point that all retirees and their advisors need to bear in mind. Portfolio construction and planning definitely need to take this threat into account.

(Washington)

Recent polls have shown strong gains for Democrats, raising the prospect that the party will take back the House and maybe even the Senate. So what would that mean for stocks? Well, the historical picture is mixed. Generally speaking, stocks have a rough September heading into the November midterms. However, immediately before and after the election, they are relatively unaffected, no matter the outcome. Generally speaking, from the beginning of October until the end of the year (in a midterm year), stocks rally strongly.

FINSUM: The basic picture here is that we could be in for a rocky month, but that stocks may do well as we approach and move past the midterms and investors get used to the ‘new normal’, whatever that may be.

(New York)

Even if you aren’t thinking about it yet, the president is. In an interview yesterday, President Trump said that the stock market would crash if he were impeached. No one can be sure, but history suggests it would have little impact on the market. In the two previous cases in recent memory—Nixon and Clinton—the market behaved differently, falling sharply in the 12 months prior to Nixon’s impeachment, and rising before Clinton’s. JP Morgan’s best guess is that an impeachment wouldn’t be enough to derail the markets and economy itself.

FINSUM: Another interesting argument is that Trump wouldn’t ever be impeached until the market headed south, as that has happened in both of the previous instances (there was a brief but steep correction before Clinton’s impeachment). Nonetheless, we really don’t think Trump will be impeached.

(New York)

There has been a lot of consternation over markets this year, and with good reason. Between a trade war and rising rates, there has been a good deal to be nervous about. But in the last few weeks, something definitely changed, as exemplified by the Dow just recording its best month since January. Worries about the trade war have abated in the last couple of weeks, but the big question is whether recent gains are sustainable.

FINSUM: So on the question of sustainability of gains, big banks like Morgan Stanley, Citi, and Goldman Sachs have indicated this week that they think markets are destined for a near term correction. We aren’t so sure. We are suspicious of how prices have risen, but in this instance we are drawn to the old idea that markets love to climb a wall of worry.