I saw an article this week titled “This Stock Market is Immune to the News”. I always cringe a little when I read stories such as this because they strike a euphoric “nothing can go wrong now” tone that almost always ends badly.
The article does make a few fair points. The Brexit vote initially resulted in a sharp decline for equities before rallying and recovering their losses. The same thing happened on election night when the futures markets plunged before posting strong gains in the following weeks. Nuclear threats from North Korea, the withdrawal from the Paris agreement, the failure to pass healthcare reform, an investigation into Russia’s involvement in the election and a devastating hurricane have all failed to derail the financial markets.
As most asset classes continue to post gains, it’s important to remember one unfailing rule – the markets can and will correct. Right now, the economy looks strong. Unemployment is low, earnings growth has been solid, inflation is contained and the Fed is prepared to only slowly raise interest rates. Using an evidence-based approach, there’s little economic reason for a downturn right now. But the market doesn’t need a reason for moving the other way. Back in January 2016, the S&P 500 dropped 9% by the 20th of the month. There was no real impetus for the move other than many investors reset at the beginning of the year (although there was concern about a lack of earnings growth). Plus, North Korea or Russia could escalate tensions at any time, a move that could certainly cause the markets to turn quickly.
The lesson, of course, is to prepare yourself now while things are still in good shape. Waiting until a pullback occurs can lead to panic decision making and that could end up making things worse.
Hurricane Harvey was the biggest news story again this past week and much of this week’s ETF watchlist covers industries and sectors that could be affected by the storm’s aftermath.
