In the last newsletter I observed that Arthur Okun’s misery index signaled likely political consequences. Those consequences have arrived, much larger than I anticipated. Since endless quantities of digital ink have been spilled trying to explain why and what it means, I shall limit myself to the markets and leave the punditry to others. In short, my outlook for stocks and bonds remains the same.
We are in a late-stage bull market accompanied by an excess of exuberance and an excess of debt. Too many investors are using leverage to drive up the prices of a handful of companies. Many of these companies, such as semiconductors, are cyclical and are poor long-term candidates for leverage. The volatility we experienced last week is largely the result of heavily leveraged investors trying to protect themselves from excess risk. We shall see more of that over the next year.
The American economy is very strong, even if our stock market is dominated by a handful of overpriced stocks. The long-term question is whether or not expensive tech stocks will meet our clients’ planning goals. A lot of that depends on the age and financial situation of the client.
Currently, I do not see market volatility spilling over into the economy. That could change. Either way, this is a great time to review objectives and consider our options. We are here to help.
Thank you for your business.