One of my fears as a recently established dividend growth investor is how will I react to a volatile market and how it will impact my ability to be able to ignore the noise. Given the current environment that appears to boarder on irrational exuberance yet again, it makes sense to think about what I would do and how I would react to a market sell off watching my nest egg come crashing down again like the 2009 recession that I had the privilege of experiencing first hand. So why am I fearful of the market right now when all things seem to be clicking on all cylinders?
- The current political environment – I’m not one to delve into who’s right or wrong about one’s political believes. Personally I could care less if you like Trump, Clinton, or that pineapple better for political office, right now there is legitimate craziness going on in the political world and it’s very much something that could upset the markets. Why would politics be so impactful to the market? It’s because markets like political gridlock because it’s predictable, they know that little will be done to change the business environment so there is less to fear from the government being involved with the regulatory environment, which in turn is a good thing. Right now we have anything but stability within the political world. Whether it be protests, the president, one party owning both houses and the executive brand, or an untested political team working for the first time at the top of the free world, nothing here screams stability to me.
- Markets after a two term president – The hyperlink here is something that is troublesome when you start looking at history and while past actions are not predictive of the future, this chart is somewhat unsettling. You see for every two term president that was in office, after the second term the market experienced a bear, sometimes quite a large one. This dates all the way back to 1960 which includes a pretty solid track record. What’s interesting to consider here is that even though we usually have the bear after the second term ends, we’re having almost the exact opposite affect with Trump’ss take on the business environment. What could change this is if he can’t accomplish the pro business ideas that he promised during the campaign which could again result in the market entering bear mode.
- The Greedometer – The work here has been relatively interesting to observe and I’m honestly partially torn on the accuracy as of late as the Greedometer predicted past bear markets with startling accuracy. Right now the countdown to crash is listed as basically now so I’m curious how this will play out. This is a very interesting as it includes adviser sentiments, growth rates, VIX, S&P 500 profit margins, along with other inputs. Right now the creator of the tool is basically telling us that there will be a severe crash coming soon.
So with the current state of affairs I think I’m rightfully concerned with the near term financial markets, but I view that as a good thing, an opportunity if you will. One of the things I learned in the 2009 bear is that while I still was investing I should have been pouring way more money in as my net worth would likely be very different today that it is now. Not saying I’m in a bad place, but to be in a stellar one would be even more fantastic. While I will continue to allocate capital to companies I expect to provide out sized returns, I plan to start keeping a rainy day fund for when the market meltdown eventually has to happen. What do you all see for US futures and are there concerns I haven’t listed that you think we should all consider?