Conflict in the Middle East may be spreading. The human lives that have been in global conflict in recent years is sad. Now, it appears that conflict in the Middle East may be spreading. I hope for peace. Please forgive me as I take a financial perspective.
Bad News Is Bad News, But There Is No Panic in the Markets
Over the last 25 years, I have written many articles explaining the opportunities to not panic when it seems that everyone else is headed for the exits. The lesson has been learned almost too well. The challenges in the world are not challenging asset prices. The tragedies are not tragic on Wall Street. The uncertainties are certainly not having an impact yet, but some of them probably will.
- Election Years: This year has seen as much political uncertainty as any. Even a typical election year has extra volatility in stock markets. This year has been different. Every bit of selling is met with a surge of buying. October may bring a change. It typically does. Don’t let your personal political views change your investment plan. Presidents have limited power. Markets are difficult to predict. Even in a volatile election time, markets find a bottom and start rising before the election has even taken place.
- War: Israel is fighting to eliminate possible threats at a great human cost. Iran is suddenly joining the war openly. Ukraine now believes the best defense will include a good offense. Markets typically react by running from risk and moving towards bonds, oil, and gold. Except in areas where there is a lasting change in economic supply and demand, the initial reactions typically reverse.
- Natural Disasters: Hurricanes and other disasters have rattled investors for days or weeks in the past. However, markets reacted very little to the uncertainties and devastation of Hurricane Helene.
When the markets overreact, I see it as an opportunity. When markets do not overreact, I do not see a reason to do much. Success comes from making good decisions and sticking with them until something changes.
Good News Is Good News on Wall Street.
Inflation is not a concern for now. The government is still spending record amounts. Both sides of the aisle want to keep it going. The Federal Reserve is lowering rates to ensure it is not restricting economic growth. The circulating economic stimulus sent to all Americans went through the economy and is now in the IRAs and investment accounts of the wealthy. They are feeling confident, and they are responsible for most consumer spending. The economy is okay for now. Yet, inflation has come down. It is worth watching it to see that it stays low.
All Priced In
The Federal Reserve lowered its overnight interest rate in September by half a percent and said that it intended to keep lowering rates in most meetings for the next year. Nearly every day over the next week, interest rates went up in the markets. How is that possible? Whether bond investors realized it or not, as they bought bonds over the last few months, they had pushed up prices to a level that matched unreasonable expectations. The only way bonds were going to continue their seemingly straight path upward was if there was a panic on Wall Street that sent investors running to bonds. That has not happened.
We Are Living in Amazing Times We have access to incredible amounts of information and innovation. The result has been a buy-the-dip mentality and a dampening of visible risk in the investment world. The average investor has rarely felt so confident. They have more in stocks than ever before according to CNBC. This is smart in the long run. However, I don’t like to see it setting records.
Meanwhile, some important people have decided to reduce their allocations. I say reduce because we all know these people still have plenty of assets invested in the markets. Warren Buffett, Jensen Huang, Michael Dell, and many others have been selling. We have not seen this much insider selling since the end of 2021, when Jeff Bezos, Bill Gates, and Elon Musk were dumping shares of their own stocks.
The Government Continues to Support Asset Prices
Public opinion favors more government spending, regardless of the political party affiliation. It has certainly helped the economy.
Stay invested
Our government is spending like we are still fighting a pandemic, have joined a war, or are in a recession. Remember that the country does not go bankrupt. It can print money. That means the debt is not as critical as the interest payments we must pay on the debt. In the very long run, the consequence will be more inflation. Stocks are historically a good hedge against inflation. They give you a chance to keep up or even get ahead.
Making good decisions and sticking with them for a long time is a recipe for investment success. Short-term indicators discussed in this email may create an illusion that timing the market is simple. It is not.
Anything can happen in the stock market.
