We ended last month’s newsletter saying “that this correction feels different.” Well different may have been an understatement. Not only did a Santa Claus rally fail to happen, he may have left investors with more than a lump of coal in their stocking.
The markets continue their slide
The current tantrum has blown into full blown freakout as the Fed essentially has “broken up” with the market. When hired, it appeared Powell was insistent on not having his policy dictated by stock market movements and he proved it this past week. While I’m not saying the Fed was wrong with hiking, it’s just that the stock market would obviously not like it. There may have been enough negative data to pause the rate hikes, but they felt that the need to hike anyways. It was only a quarter of a point, but the way the market reacted felt like the final stage of a bad breakup. I felt like the market put him to the test where a different Fed may have flinched amidst the market volatility and paused. But like a bad breakup, Powell hung in there and stuck to his guns.
As I mentioned in the October newsletter, “we are currently still riding the longest bull market in history which was built on having accommodative Fed policy. So if that is what drove the upside, we would need to be prepared for what happens when it goes away.” Well, looks like it has gone away. On the other hand, who knows how the market would’ve reacted if they wouldn’t have hiked. I think it could’ve possibly sold off even worse as a bearish signal about the state of our economy.
Through all of this, it is easy to forget that it’s not the Federal Reserve’s job to prop up the stock market. Instead, they are in charge of keeping our financial system healthy and functioning properly while looking to prevent booms and busts. While this “breakup” hurts now, it may be for the best down the road.
What’s bad for the stock market isn’t always bad for everyone
After all, there is a consolation prize to the “break up.” Savers get a big win after years of low rates and being forced into taking market risk to generate a decent return. And this may not be the worst thing with an aging baby boomer generation which would greatly benefit from higher fixed income rates.
While the fears we referenced last month still remain, remember don’t lose your head when it feels like the world is falling apart. Lots of factors are creating more volatility than ever. From President Trump to the media to the rise of passive investing and computer trading, times are crazy out there for inexperienced investors. Just don’t forget it all comes back to the math. As long as a company is making money, their stock price will reflect it. Don’t forget there’s always a Warren Buffett out there with an eye for value. If anything becomes too undervalued, look for someone to come scoop them up. That’s what this market needs right now is a leader to step in and who knows it could be Mr. Buffett. After all it was him who stated my favorite piece of advice: “Be greedy when others are fearful and fearful when others are greedy.”
Well there is certainly plenty of fear out there….
Anyway, don’t let the market take your focus of what’s important this time of year. Hope you all have a Merry Christmas and Happy Holidays!
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Clint Kirby – Chief Financial Strategist
DreamWork Financial Group
Clint Kirby, DreamWork Financial Group, is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.