Before Donald Trump won the election, the smart money on the street (Wall Street) said, “the stock market is going down.” The fear was, Trump’s craziness would make life miserable for investors, so a sell-off occurred before he was sworn-in. The sell-off was short-lived, however. Stocks reacted positively to the unorthodox real estate mogul, turned rogue politician, and investors made money. But investors George Soros, who dumped $10 million into PACs supporting Hillary Clinton, lost a lot of money. No one should hold a benefit for Soros, or any other hedge fund guru, because the surge in the market was good news for average investors, and for people that have money in a self-directed IRA.
Investors are feeling good about their investments now, but they can never feel too good in an economy that is weak and is showing signs of getting weaker. Sure, there are bright spots in the economy, tech and healthcare stocks are still running hot, so some investors will still be laughing on the way to the bank. But there is a high-risk of a correction on the horizon, according to strategists at Goldman Sachs. The risk of a correction is not the work of failed healthcare reform or the twice-baked immigration debacle. In fact, nothing that Trump has done, or not done, will contribute to the upcoming correction, according to those Wall Street strategists.
The correction will be the handy work of inflated valuations, and the fundamental peaking of growth in trade. More interest rate hikes will also play a part in this potential correction. But according to Goldman Sachs, this future event may not be the end of the bull market. The keywords in the last sentence are, “may not be.” There is always a chance that other factors will impact the market and create the makings of a bear market. The Dow Jones Global Indexes had its eight straight losing session recently, and that is the longest losing streak since 2011. The S&P Index is doing a little better. But the S&P only had seven out of eight losing sessions in a row.
The market is overpriced, and that will hinder Trump’s ability to get his promises through the political barricades put in place by the Congress and the Senate. Radical tax cuts, the deregulation of many industries, fiscal policy changes, and infrastructure initiatives are important to many investors, but there is a double-edged sword mentality in the works right now. Money is the name of the game in the White House and in every investor’s mind. A failed tax reform bill could be the catalyst for a major correction, or the news that the economy is slowing down to a crawl in the third quarter of 2017 could be the correction instigator. There are so many variables in the social, economic, and political air right now.
The decision to take part in a bull or a bear market is an individual choice. There is a valuation gap between the U.S. equity markets and the markets in Asia and Europe. The chances of a flat market for the balance of 2017 continue to grow. But markets in Europe and Asia may see more positive growth.