Market Pulse: On distractions and the economy
September 12, 2018
For years we've seen how investors can be easily and irrationally rattled by any number of things, real or imagined. They recently showed signs of that again.
A few years ago stock investors, spooked by the chaos in the streets of Athens, fled equities for the safety of treasurys and cash. And before the financial troubles in Greece there were those in Iceland.
Cyprus soon followed and concerns grew about debt-ridden Portugal and Spain. In each case the market's slide created a great buying opportunity in a long-standing bull market.
Now we have Turkey's currency, debt and economic problems triggering a sell-off. These concerns quickly morphed into worries about the prospects for emerging economies and global growth. Was growth still on track?
Some had doubts. Oil, copper, gold, aluminum and other commodities declined. Stocks of companies in commodity businesses fell as well, and those that are most sensitive to global growth also tumbled.
On the other side, utilities, drugmakers, and consumer staples stocks rose.
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The result will be another buying opportunity. For the next month we are in a seasonally weak period for stocks, but after that expect the market to recover and head even higher.
Away from the distractions in the emerging markets and D.C. politics, the economic data continue to point toward solid growth through year-end. The dollar's strength may undermine it a little, or maybe not.
The relationship between currencies and growth is not all that clear nor predictable, but the currencies of countries with growing economies attract investors who need them to participate. That is why the dollar is strong.
Foreigners want to invest here, not in Venezuela, Russia, Cuba or Iran. Money goes where it is treated best, whether through higher after-tax yields or with better growth opportunities — or both. That's been the allure of the U.S. for a long time and it will be for years to come.
Foreigners aren't the only bulls. Optimism among owners of small businesses reached a 35-year high and the index is within a hair of its highest reading ever.
ISM data show that American manufacturers are growing at the fastest pace in 14 years. Wal-Mart and Target said that second-quarter sales rose at the fastest rate in 10 years.
Target's CEO said these are the best conditions he's ever seen and many small business owners must agree. They see the order book and solid demand for their products and services. They are optimistic. We should be, too.
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.