These days, the stock market can swing from positive to negative territory, sometimes moving 800 points, in just a few hours. Due to the daily volatility, future market predictions run the spectrum from cautions of a looming recession to claims that we are witnessing the strongest market in history. It’s hard for anyone to make sense of the noise and separate fact from fiction.
The truth is that the Dow Jones Industrial, the most widely referenced measurement of the stock market, is up approximately 2,700 points or 12% year-to-date 2019. While the Dow is down approximately 5% since the market high in July of this year, the stock market is still positive year-to-date, and still near all-time market highs. Much of this has to do with the fact that the economy is strong, despite the political uncertainty. In fact, second quarter earnings in 2019 on the Standard & Poor’s 500 Index stood at $42.13, even higher than the originally forecasted $40.70 for the quarter.[i]
However, the Trump Administration’s escalating trade war with China is continuing to throw the market for a curve ball. In early August, the President announced a new round of tariffs on China which sent the market into a tailspin. On Friday of last week, President Trump demanded U.S. corporations leave China and publicly called the Federal Reserve Chairman, Jerome Powell, an “enemy” for not lowering interest rates. Both actions negatively affected the market.
It is common knowledge that the President considers the stock market his measure of success and is therefore upset when the market is down. So, after the market sell-off last week, the President claimed to have received “two very good calls” from China indicating a resolution from China could be on the horizon and his hardline tactics were yielding positive results.[ii] However, less than 24 hours later, Chinese delegates publicly announced that no such calls had been made and “China didn’t change its position.” [iii] It’s no wonder stocks, and investment portfolios, are getting whipsawed in the market.
Besides financial news that directly affect the market, reports of President Trump advocating for Russia at the G7 Summit and his tweets bashing Puerto Rico as they prepare for Hurricane Dorian make any possible logical conclusions about our political predicament impossible. Those with sound mind are trying to make sense of a very volatile and confusing landscape, but it’s getting harder each day.
It is quite possible that the U.S.-China Trade War will push the longest running bull market into an overdue correction. If that’s the case, economists predict that a down market could stretch from a couple of quarters to a year or two. However, history has shown that a market exodus can present an opportune time to buy when stocks are on sale. Giving into emotions and locking in losses during a market downturn only hurts long-term investment performance. A better solution is weather out the storm or, if necessary, make a portfolio adjustment that will allow you to stay invested for the long haul and capture market recovery. Whatever direction the market takes in the weeks and months to come, we will certainly be entertained.