Minus a few blips along the way, stock markets have gone steadily up since the depths of the financial crisis in March 2009. This has some investors worried. After all, what goes up must come down. However, while that’s typically true, the fact is the markets have been quietly self-correcting over the past several months. For example, the Toronto Stock Exchange (TSX) is basically flat for the year.
The U.S. stock markets are interesting. They have outperformed the TSX but that growth is driven largely because of a handful of huge tech multinationals, such as Apple, Google, Microsoft, Amazon and Facebook. For example, when the Dow Jones Industrial Average went from 21,000 to 22,000 very quickly, Boeing and Apple made up 500 points of that growth--two companies out of 30 on the index.
And then you have perhaps the most polarizing president in U.S. history. The inability of President Trump to pass his healthcare agenda has given rise to concern over whether he can get his tax cuts through. Geopolitical unrest, the result of threats coming from North Korea’s Kim Jong-un, coupled with devastating weather in the form of Hurricanes Harvey and Irma are also weighing on investors. What will it all mean for the markets and individual companies?
The thing to remember is politics and weather have short-lived repercussions for the markets. Long-term, the markets will always rise. Any stock market chart goes from the bottom left to the top right with peaks and valleys along the way. When you look at the breadth of the market today, stocks are not overpriced or underpriced. Generally speaking, they are fairly priced.
Here’s what you need to know to navigate the uncertainty:
- Keep an eye on your sector allocation. When interest rates are on the rise, invest in bank stocks and move away from real estate trusts. Rotate your assets so they align with what’s happening in the economy. Buy and hold is no longer a smart move in today’s dynamic market environment.
- The outlook for corporate earnings is good. It’s always critical to look at the fundamentals of the stocks you invest in.
- Check in with your advisor. I contact each of my clients every six to eight weeks to discuss what’s happening and where I think they should be.
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