Impeachment? Maybe. Recession? Yes
Impeachment talk is flying around social media. Polls are being taken, and so are sides in the battle. But I am here to tell you that as an investor, it is not what matters right now. Because whatever happens in the accelerating impeachment saga, the immediate concern for all investors is the declining global economy.Again, that headline does not refer to impeachment. I will have more to say about that in this Sunday’s article.
This took an economy that had overheated already and kept its enthusiasm from waning. In fact, it started a U.S. stock market surge, which continued after the 2016 U.S. election. The Trump tax cut helped that along, temporarily.However, by early 2018 , the momentum stopped. My own proprietary indicator of investor reward/risk, the Investment Climate Indicator , turned decidedly negative at that time. It ushered in a period in which bear market rules apply to investing.
However, I think that the trade angst is only one thing that gave the economy a push toward the cliff, so to speak. Interest rates were too low for too long, and no one reined in the rampant speculation and just plain risk financial decision-making that has occurred in real estate, private equity, student loans, mortgages, credit card debt and more. At some point, the party ends.
Even in the portfolios I manage, when markets look weak I usually still own stocks. Why? Because an all-or-nothing approach to investing is a big risk in itself. And, the entire stock market cannot be painted with the same brush.Perhaps more significantly, I have found that environments like this can still reward investors. They just need to be ready, willing and able to adapt to the new realities. That is, things like shorter holding periods and lots of volatility.
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