Much like pullbacks of the past, the market turmoil we’re now seeing is a dramatic break from the seemingly nonstop advance of the latest five quarters. Indeed, the steadiness and almost dependable gains enjoyed on most recent days were certainly enough to lull the naïve investor into a state of hopeful expectation. The reality, of course, is that the path to the future for the investment markets is anything but a superhighway. Over the years, there have been speed bumps and abysses, all of which have ended up as preludes to recoveries to even higher ground.
With that said, the relentlessness of the market gains has brought with it increasing concern about rising and clearly untenable stock valuations. When a broad range of stocks carry triple (and sometimes quadruple) digit quotations, you have to scratch your head and wonder what alternative universe are we now in. The simple truth is that investors have become blind to the axioms of investing. Stocks go up and they go down. And quite typically, when they go down, it’s a sharp descent, prompting many to think that it’s the end of the world.
The most recent example of this kind of thing was at the beginning of 2016, when stocks appeared to be heading straight into Dante’s ninth circle of hell. The plunge lasted a bit more than a month and then prices started heading back upward.
Given the strength of most global economies, it’s hard to think that the slide now under way is anything out of the ordinary. None of the key indicators that Wall Streeters watch is pointing the way toward anything other than relatively smooth sailing ahead. Yes, there are more interest rate hikes ahead, but we’re still at very low levels. Quarterly earnings being reported are encouraging and with lower corporate tax rates now in place, it’s likely that profits will continue to climb at an impressive pace. What’s more, the spread between the 10-year T-Note and the fed funds rate is still at a comfortable level.
So if there’s an economic cloud ahead, it’s off in 2019 and quite possibly beyond. For these reasons, it would be best to view the current slippage in stock prices as an opportunity to buy in at better prices. No need to rush since these kinds of events have to run their course.
Investors would be best advised to focus on reasonably valued issues that have been unduly punished in the current downturn. When Wall Street gets rattled, the baby is often thrown out with the bath water. These are opportunities will be ripe for the picking.