Market Pulse: It’s October, usually the rough time of year (Opinion)
I am almost getting used to the market having a rough time of it in October, which has historically been the year’s worst and most volatile month. I said almost.
The Dow lost more than 1,000 points in three days then recovered that and more. Why the selling? Economic data seem to support the belief that the economy is slowing and a recession may not be far off. Then there are the tariffs.
Previously, the global economy benefitted from growth in emerging markets. Now growth in China and its neighbors is slowing.
I have no insight on when there will be a trade deal, nor does anyone else. Maybe it happens soon, or perhaps after the election. I do know that the trade war is a long-term problem for China and a short-term negative for us.
With the possible exception of some farmers, we will make up for much of the damage that has been done, but by the hundreds companies are moving production and sources away from China to places like Vietnam, South Korea and Thailand. They will not return. China knows that will be a problem on top of their others (there are many).
Any number of positive developments could trigger a big rally into year-end and beyond. A hint that there will be progress on a China trade deal has already boosted stocks. Passing the U.S.-Canada-Mexico treaty might be it.
The new trade agreement with Japan was a positive sign, as was a recent deal with South Korea. All that said, something off the radar might push stocks to new highs. For example, hedge funds have badly lagged and are under-invested in a bull market, a dangerous and risky position. Near-panic buying by hedge funds could quickly push stocks higher. Or maybe it will be the likelihood that more rate cuts are coming.
Recall that Fed chair Powell said last month that future actions will be “data dependent.” If so, the reading of the purchasing manager’s index might trigger another cut.
The index, which surveys sentiment, declined to its lowest level since 2009. The trade dust-up with China is one reason companies are cautious. The GM strike and problems with Boeing’s 737 also undermined the index.
Daily swings notwithstanding, the bull market is alive and well, fueled by modest GDP growth, rising earnings and low inflation. Oh, there is also a shortage of attractive alternatives. That’s a reoccurring theme.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.