May Market Update - Take the Long View

By: David Smyth, May 21, 2019

I feel like a broken record when I keep saying that these days, it seems like it always comes back to Trump tweets. But, that's the world we live in, right? No US president has paid more attention to where the Dow Jones Industrial Average is on a day-to-day basis. Everyone wants the economy to do well, and the president wants to be in a growing economy, and no one else has ever shared opinions about where things are on a moment-by-moment basis as businesses are handling their day-to-day operations.
 
Trump will be seeking re-election next year, and he's going to do everything in his power to make sure the markets reach higher highs in hopes of winning another term. The problem right now is the tariffs on China, and I personally am in agreement that we need to play hardball with China, not just in this current situation, but always. However, this has been wreaking havoc since March of 2018. Despite this, the markets have trended higher during this period, but this current path has left many feeling concerned about the recent volatility in particular.
 
I just recently spent a week in Chicago at a wonderful financial services conference which was not only highly educational, but introduced me to some new technology and software as well. Over the summer, as you come in for your quarterly meetings, we'll be talking to you about our new risk-analysis software, as well as answering any questions you have regarding how to take advantage of the market's volatility. 
 
Back to Trump though, the issue with this latest round of heightened tariffs is that the two companies hit the hardest are Boeing and Apple, and these are two of the higher-cap companies that move the Dow the most. As long as this trade battle goes on, I believe we can expect volatility in the market. From the short-term view, this doesn't feel good. If you look at your accounts more than once a month, then you will notice swings that are happening simply because of the news headlines, and that actually have nothing to do with the financial health of the companies you own.
 
I encourage you to take the long view - we're still in growth mode, we're seeing record unemployment, and this is probably the US's best chance to impose our will on China in trade negotiations. Will it work? I have no idea. But the uncertainty in these trade talks is no different than the issues and concerns we talked about during your initial meeting with us, where we talked about what you've done in the past and where you want to go in the future. I know for many of you, whether you knew us socially or had just met us based on a neighbor's referral, that conversation was difficult because you felt like you were baring your soul. And that's normal, whether you're switching to a new financial advisor or choosing your first one.

 

As we reviewed your situation, made recommendations and put a financial plan in place for you, we had no idea that the markets would reach new highs in 2019, but they have. Prior to 18 months ago, it seemed like the markets had gone straight up for nine years, and while they're still trending up, the way it's moving now is seven days up, five days down, or 14 days up, then three days down that completely wipe out those two-week gains. These moves may not create confidence in the financial system. But, this is the way it could stay, because we are in a computer algorithm-driven market.

 

I still believe that we're in a healthy, growing economy, but, just like all of you, I don't claim to have any idea where this market is going. However, if you put a gun to my head and ask me where we'll be by the time ads for Trump's re-election come out, I believe we'll be higher, not lower. Now, that doesn't mean we're 100 percent invested in your portfolios. For the majority of you, we have raised between 15 and 20 percent cash, and as the volatility hits, we have enacted stop-losses so that if the markets continue lower, those losses shouldn't significantly increase. At the same time, we are looking at the markets on a daily basis, and across accounts, we are putting cash and new money you send in into the markets on days when the volatility seems extreme.

 

So, take a deep breath, plan for the long term, and as always, please, let us know what questions or concerns you have. We're just a phone call away.

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