3 Events That Could Send Stocks Tumbling
For the most part, the glass in front of me always looks half full.
Even during the worst of times, I remain optimistic. Capitalism and growth wins, always. The key to successfully navigating whatever the market brings is a sound plan.
Knowing that has served me well over the last 30+ years. It has been my guide through a career that included the portfolio-insurance driven crash, the dot.com bubble, a real estate bubble, recessions, expansions, and myriad other events.
That said, I’m also a realist and I’m prudent; in the short-run, just about anything can happen. I see today’s market as priced for perfection; it’s not a stretch to expect the market to experience some bumps in the coming months.
In portfolios managed by my firm, we have chosen not to chase a market that already decided a V-shape recovery is at hand.
Now (in our opinion) is a time to be cautious.
I’d like to highlight three things that could set the market back in the near future. If they do, that will be the time to deploy cash earmarked for stocks. Remember, the key to success in the market is to buy low and sell high.
Here are the 3 events to be watching:
Covid-19 Resurgence
It’s surprised most everyone to see the market continue to rise as infections spike in the Southern United States. In late May, when many States were starting to reopen, it was universally thought that if infection rates spiked, the market would be in trouble.
So, they spiked, and the market ignored it. What’s going on?
I decided to go and analyze the data being released by the CDC. I wanted to see what we truly know and don’t know about this virus to help me better understand what the market is discounting.
About the only definitive conclusions the date reveals is that if you’re under 60, the virus is really not (statistically) fatal. If you’re over 80, you’re in big trouble.
That data tries to address the risk to people with preexisting conditions. The problem with that data is it is not consistently collected or itemized in a manner that allows for good analysis.
I would consider statistical conclusions drawn about specific preexisting conditions and fatality rates to be premature (statistically). Nonetheless, I would heed to warnings of doctors who are treating patients and observing this risk. Better safe than sorry.
What we know very little about is natural immunity (aka asymmetric infections) or immunity gained from survival.
I believe the market is betting that we (as a population) will develop a herd immunity to the virus. In this light, as more younger people become infected (the current spike), the population is moving closer towards herd immunity and we return to normal. We don’t have to wait for a vaccine.
If that’s not true, I believe the market is vulnerable to the news.
Presidential Election
Polling data suggests that we will have a new President come 2021, one who has vowed to undue much of what the current administration has done.
In my opinion, the result of the election will not be significant unless the Democrats sweep both houses of Congress and the Presidency. That would undoubtedly lead to less favorable conditions for business and the markets. Rising taxes and regulations are promised.
A Republican sweep would be viewed positively since the current administration has been very favorable to business, especially domestic businesses.
A mixed result would also be positive. If the next President does not have both houses of Congress, there will be gridlock. Nothing will fundamentally change. That too, would be good for the market as the effects of 2017 tax cuts continue to benefit investment and spending.
The market’s attention will turn to the election this Fall. If the current polling continues to favor the Democrats, the market is likely at risk.
CAREs Act Expiration
There are millions of workers negatively impacted by the pandemic. The CAREs act helped ease the pain. For many unemployed, one could argue that they are better off not working than when they were working.
The enhanced unemployment insurance expires on July 31. Will it be extended or not?
The market seems to be saying that an extension is all but guaranteed. That means this failure to extend the Act could be a risk.
The extra money paid to the unemployed has most definitely helped diminish the economic hit from the shutdowns. Is the economy strong enough to withstand the removal of that stimulus?
There are other significant events to keep an eye on, but these three alone have the power to trip up this perfectly priced market.
If you are uncertain as to the impact of any of this on your particular situation, please give us a call.