If you’re wondering why the stock market seems a little stuck
Stocks are a mess. if you’re invested right now and you have been for months or years, you’re aware it’s been a time of stomach-churning volatility and lack of forward progress since July, what Wall Street calls ‘trading sideways.’ There is not one cause for all the market chaos, there are many. We are in an unprecedented time.
Foremost in the minds of US investors, we have yet to crush inflation. The primary tool used to tame inflation is interest rates, currently higher than they’ve been for over two decades. The Federal Reserve bank is considering yet another rate hike at the end of this year, increasing the likelihood of a recession next year (though clearly there’s been talk of a recession for over 18 months now). All of which will decrease corporate profits, which reduces the forward-looking value of stocks.
Then there’s the political and sociological polarization which has gripped the country. Liberals versus Conservatives versus MAGA Republicans (not the same as Conservatives!). Though most Americans have far more which unites them than which divides them, we are in a critical moment where that commonality seems astonishingly difficult to find.
Add to that the debt ceiling fight in Congress early last summer, which spooked investors both in and out of the US, as much of America’s debt is held overseas. Then there was the budget fight early this month among Congressional Republicans, nearly shuttering the US government, which even the Wall Street Journal commented was “part of a clever plan .. to cut off their own heads.” Add a Supreme Court with some clear ethical issues and vastly reduced public respect and trust. Add full-on corruption charges on the left for Senator Bob Menendez, on the right for Congressman George Santos, and on former president and likely Republican nominee Donald Trump. Add President Biden’s family practice of trading on the family name for favors and access. Americans right now are thoroughly disgusted by their government.
All of these events affect confidence, which affect the public markets. When things look sunny and positive, stock prices rise; when they look grim or scary, prices fall.
But we’re far from finished. Covid-19 deaths among the elderly and the unvaccinated continue. Auto workers, health care workers and half of Hollywood went on strike to demand better wages and more secure working conditions now and into the future (yay unions!), but at the cost of a work stoppage making TV and movies, reduced access to necessary medical services, and reduced car inventories and higher prices (boo unions!). Three of the world’s most powerful tech companies, the very source of what market growth we’ve seen this year, are being sued by the US government for anticompetitive behavior. AI recently got genuinely smart and a number of individuals we consider tech geniuses are now genuinely worried. The planet’s climate is warming, and even if you deny human causation, it’s hard to argue with the results: more global weather disasters of greater severity, warming oceans and dying coral, massive deadly fires, drought and searing temperatures with no clear solution.
You can just begin to see the fear investors have of stock values over the next couple of years.
Oh wait, I nearly forgot: in 2022, Russia moved to capture Ukraine, and after thousands dead and probably a hundred billion dollars in damage, that fight continues. China is threatening Taiwan and much of the South China Sea— most of which does not belong to them. India, the most populous country in the world, has gone full nationalist. Israel’s government went extreme right. Then last week Israel was brutally and mercilessly attacked by terrorist group Hamas, with backing from the government of Iran, and is now embroiled in a huge military conflict along the Gaza Strip.
The new world order is no longer America on top and everyone else in sliding order of importance. We are now a multipolar global ‘community,’ in which several heavy hitters vie for economic, technological and military dominance. Markets definitely do not like wars involving US allies or raging global fear.
So investors are wrestling with increasing economic pressures, worsening climate crises, incompetent government, a global trend toward bigotry and fascism and dysfunction, and full scale war on two continents. Serenity is down, sleeplessness is up.
I told you all that to tell you this: the markets are a train wreck. There is no certainty. No predictability. No trust, no real comprehension. We watch or read the news to understand what’s going on, and to learn what to expect in the economy, in the housing market, in our schools, in our leadership, on the battlefield, on our streets, in our stock market. But still we can’t. If anything, given what’s going on we should be pleased with ‘trading sideways’ instead of panic selling across the board. We should be happy to have a few weeks of economic confidence and share buying, followed by a few weeks of fear and share selling. It’s Groundhog Day for investors. But it could be a lot worse.
Remember that the fundamentals of investing haven’t changed. The American economy over the long term will grow. Successful businesses over the long term will appreciate. If you’re invested, stay the course. When you get a little cash, buy shares. Don’t know what to buy? Bet on the S&P. This might take a while, but all the weirdness eventually peters out. There is a lot of investor money right now in savings, in bonds, in homes which owners are not ready to sell. Eventually it gets freed up and it heads back into stocks. All those great businesses you own will bounce back. Investing is the slow, slow, s—l—o—w way to build wealth. Be patient.
Call me with questions or concerns. I love to talk shop.