Much has been written in this publication’s pages about a forthcoming correction to the aging bull market. Last month, we wrote briefly about the first visible signs of chink in the armor when, on May 17th, the Dow Jones and S&P retracted -1.8% over reports that President Trump tampered with a federal investigation.
To Invest, or Not to Invest, that is the Question. The Wall Street Journal recently ran an article debating whether the Social Security trust fund should be allowed to invest in stocks. The piece juxtaposes two opposing views; one side arguing ‘Yes’ and the other ‘No’.
Recent populist-driven election results underscore the truth that a race cannot be called until every vote is tallied. Remember the final polls leading up to November 8th? The New York Times predicted, with 84% certainty, that Hillary Clinton would be the next President of the United States. In fact, consensus polls didn’t have Trump within 1.5 percentage points of Clinton between June 2016 and election day.
Buy-and-hold, the path to gold? Nearly 25 years ago, Jeremy Siegel’s book, “Stocks for the Long Run,” hit the market. It was an instant bestseller, at least by financial book standards. His timing was propitious, since it came out in the middle of the biggest bull market in history.
Fed Storm Rising. It’s been roughly 13 years since I borrowed—and modified—that title from Tom Clancy for our old hardcopy client newsletter, The Strategist. It was written during the early stages of the last Fed tightening cycle, a hiking campaign which was to last for two years, jacking up its overnight rate from the previously-unimaginable level of 1% to a peak of 5 1/4% in June, 2006.
Despite the fact the Fed increased rates at 17 consecutive meetings from 2004 to 2006, the S&P 500 rose pretty much steadily throughout this period. Stocks even made a slightly higher high in October of 2007, in the wake of the Fed’s somewhat panicky 50 basis points (1/2%) cut, in September of that year, due to the escalating crisis in the housing market. On the day this sharp rate reduction occurred, the Dow spiked 2.5% while the S&P 500 vaulted an even larger 3%. Investors were clearly remembering the old Wall Street maxim that you don’t fight the Fed.