By now everyone has noticed that 2018’s stock market is far different from 2017’s stock market. The first round of volatility was blamed on higher interest rates. But in fact by then the tax cut had passed and it’s pretty common for stocks to sink after the realization of an expected event. Investors have a phrase for this: ‘buy the rumor, sell the news’. Stocks discount future news, so good news is already anticipated in stock prices. Since reality is often disappointing versus anticipation, such selloffs are normal.
Then, folks started to fret about deficits after the budget deal was signed. Most recently, volatility is blamed on political uncertainty around trade tariffs.
But it could be anything. After enormous returns in the last few years, the market is ready to view the future with skepticism. Under another president, with a different cabinet, provoking completely different events, the market would still be more volatile than in the last year, when volatility was near an all time low for the longest period ever.
Meanwhile, world growth is slogging along, not at a great rate but definitely in the upward direction. Oil prices are higher, housing prices are rising and sales are solid; construction is robust as states finally improve infrastructure. A generation of citizens is finally healing from the Great Recession, with employment prospects excellent and wages rising. The tax law in the US has inspired other countries to think about reducing tax burdens, and foreign companies are considering locating in the US. It is true that debt has been increasing worldwide, which could turn into a major problem down the road. But the weight of the evidence so far is on the positive side.
So we would counsel looking past the volatility and keeping an eye out for buying opportunities. Identify a few stocks you’d like to own, set a price you’d like to buy at, and then wait for it.