We just passed another Memorial Day weekend, a time we all paused to remember what generations past went through to preserve our freedom as Americans. A
special thanks to all veterans. War is a horrible thing and today we witness in real time the horrific images seemingly within minutes of their occurrence. People have very short attention spans and a short memory in this age of social media. Add to that the menu of outright misinformation propagated on the internet and it adds up to a society that is mistrusting and shortsighted. We will see this in spades as the weeks roll on to the next election as both candidates have been labeled the worst president in US history by their opposition voting blocs. There will be drama … well, I guess that’s an understatement. Relax folks … in the year 2028, like it or not, we will have a new president of the United States.

Another topic where memory runs short is the stock and bond markets. There is simply no fear right now on investor’s part and this is documented in the volatility index. ‘When the vix is low it’s time to go’ and ‘sell in May and go away’ are investment sayings met with mockery by investors currentiy as this market keeps on running. It has been a glorious time to be in the markets after the turmoil of the pandemic and the inflation that has followed. You will find a split view, much like the political landscape, on whether the market is overvalued or will continue to run on the back of Nvidia and all things artificial intelligence.

For the most part, investing should be boring. Active management rarely adds value and investors would be wise to simply ignore the noise of commercials and CNBC and stand pat through the volatility. Unfortunately this rarely happens and is exceedingly hard to do. Today nobody cares as statement values are higher. Bad news is still bad news (nobody likes war after all) but it isn’t that bad as long as stocks are up. What’s my point here? … take a minute to remember how terrible you felt when your account was down 50% back in 2009. To be frank, the setup right now isn’t all peaches and cream, which you know but may be in denial. There is weakness building underneath this Nvidia-led chip rally. Some recent examples, the transport stocks have not followed the Dow higher and the usually defensive utility stocks are leading the S&P sectors. Stocks on some metrics have not been this extended since 1929. While the economy is holding up just fine and is the envy of the world, buying when stocks are priced to perfection usually ends badly. Now reread the first sentence of this paragraph and remember what you did back then with your investments. If you were able to ride the volatility out then congratulations, you are a successful long term investor. If you felt sick and decided to do some selling ‘until things quieted down’ then you will be destined to underperform. And my point here? . ..if you are in a position to not lose 50% of your money again take some action now. You can always come back to the markets and invest at lower levels, should they appear. Yes, markets will move higher than they are today .. .it’s the timetable that can be an issue if you are a newly retired individual or need money for a major goal in the next three to five years. You see, markets do drop … and sometimes for many years at a stretch. An earnings decline or a not-so-soft landing will bring along a selloff. What will the Federal Reserve do if the economy softens, dish out more inflationary stimulus? And what if inflation runs hot again and the Fed is forced
to raise rates to try and rein it in? Having the arrows in your quiver (cash cushion) to be in a position to buy is what will help you sleep at night and be a successful investor. With money markets yielding 5% today it is not as hard a choice as it had been for the past fifteen years when rates were stuck near zero.

Speaking of money market rates, don’t be fooled and think they will stay at 5% for as long as they remained at zero. When they fall they will fall quickly and this may be in anticipation of a recession around the corner, or the Federal Reserve cutting rates as they believe inflation has been vanquished. This may be a good time to consider moving some of your fixed income dollars to longer maturities to lock in the 5% for five and ten year maturities ahead of any rate cut. Keep some powder dry though in case long bond yields begin to climb and reverse some of the steady gains over the  past twenty five years. While we don’t yet know if we will have a soft landing, which will be great for stocks, or stagflation, which benefits bond holdings, we cannot expect an inverted yield curve forever. Meanwhile, investors do not care and the shell game continues. Deficits will continue to climb as the next president will not control spending. Earnings in technology are exploding thanks to the new artificial intelligence chips which are holding the markets up. Now it is time for all of you Apple iPhone owners to do your part for this economic expansion and upgrade your phones equipped with an Al chip or fear being left behind. Like the lnstacart girl sings, ‘I’m at the nail salon and grocery store.’ Let’s hope times don’t get too hard in this country, I mean, pay off your student loans … what???

Other than that sit back and relax … but keep at least one eye open!

By Rylie Nugent

Published December 10, 2024

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