A week ago, I released the June 2018 FPF Newsletter and it exclaimed, “Domestic stock investments seem to have righted themselves and we have, once again, reached positive ground for ‘The Market’ this year.” It’s only 8 days later and, already, the comment hasn’t aged well. The S&P 500 has plunged 1.5% (the NASDAQ 3.5%) since then. The culprit: Tariffs
There are many reasons why taxing imports / exports is a bad idea: retaliation from other governments, restraint on innovation, alienation of allies, production inconsistencies leading to job loss, et al. Tariffs punish both producers and consumers. The only ones barely affected are the uber wealthy; and, now, you know why the current administration is perfectly fine getting into trade disputes on multiple fronts; those individuals will be okay no matter what. That’s terrible public policy, especially when executed by amateurs, and it more than neutralizes any gains made by the top-heavy tax plan rolled out last year.
The market’s problem with some tariffs isn’t that they are unfounded. For too long, China has been stealing our Intellectual Property and mimicking our technology without any compensation. It’s okay to have tried the tactic. But, this administration is currently wielding tariffs like a toddler at his birthday party who just got his first plastic sword … there’s a lot of imaginative flailing and some friendly fire incidents.
The Market should be soaring right now. We expected a general rise in the values of the domestically based companies for much of the rest of the year. We juiced our economy with a nonsensical tax plan (both for who it benefits and its timing); the administration wanted a victory. It’s most likely a hollow one that will widen the already staggering wealth gap in this country. It seems like our ‘winning’ must come at the expense of others. Those others are the countries with which we share this planet. Thus, internationally-based companies, no matter their size or location, haven’t fully joined the most recent rally and may not get one of their own in 2018.
One of the ways to see if investors believe in the direction of the economy is to examine the performance of bank and financially-based stock. This is a sector of the economy which should benefit from rising interest rates, deregulation of reserve rules, and tax cuts. Currently, these stocks are hovering near 2018 lows. It appears that large institutions and independently wealthy people are nervous about our financial future.
Also in the June Newsletter: I referenced the Warren Buffett-credited saying, “Be fearful when people are greedy and greedy when people are fearful.” Is America the one being too greedy with these tariffs? That remains to be seen.
Based on how the market has shrugged off the daily circus that envelops our current federal government, I am inclined to believe that this too shall pass. Contrary to what has been stated, trade wars are not easy to win. But, soon enough, there will be something else to draw our focus … though, I cannot imagine what could be more important than top-down misguided ideology unpopular with the vast majority of economists and citizens.
So, as a student of history, my recommendation is to keep the portfolio fully invested in its current stock positions. Everyone making use of FPF has a personalized strategy for removing a significant part of their portfolios from the market, when certain technical indicators are met. At the time this blog is being drafted, these indicators are not close to going off.
Navigating this market is like tip-toeing through a room filled with sleeping long-tailed cats and rocking chairs. At some point, you’re going to have to steady yourself; hopefully, the chair on which you lean won’t rock backwards on a tail – resulting in a cat screaming and waking up all the others. (This, of course, assumes that none of us wants to be in a room full of agitated felines.) Allow us to worry about when it’s time to be less aggressively positioned (avoid the caterwauling) so you can focus on what you enjoy.
Taking part in your lives continues to be my honor. Don’t forget to make your appointment to review your accounts and further the planning process with regard to your other concerns in Q3!
For those who aren’t clients or haven’t yet held your no-cost initial meeting, the summer presents a great opportunity to touch base with a financial planner. Don’t let your financial inquiries go unanswered any longer! It’s time to identify the strengths and weaknesses of your current financial situation and take action on your goals. Full Picture Financial looks forward to helping provide a glimpse into your future …