After a record-setting run to glory approaching a pinnacle for the most consecutive days of market gains that date back to 1898, just two years after the founding of the Dow Jones Industrials, it appears the stock market is on terra firma. It’s true there is little more firma and there’s lot less terror than last Summer. On March 9, the bull market for the S&P 500 reached 8 years in length surpassed only by the big run from 1987 until 2000, according to BTN Research. Since then we have stalled and are stuck as a result of one of 28 stock markets risks: Political Uncertainty. This time the culprit is the failure to replace and repeal the ACA and upcoming tax reform legislation.Stock market volatility and the potential for a significant correction, as measured by the number of days with 1% gains or losses, remains near all-time lows but is increasing significantly after the March 24 collapse of Health care reform.
Are Happy Days here again after a 10% rise in the Dow since the election of Donald Trump in November? Much of the optimism is related to a tax reform plan that will take years to implement fully if past plans are any indication. From President Reagan’s State of the Union comment on 1/25/1984 to “simplify the tax code so that all taxpayers are treated more fairly”, it took nearly 3 years until the Tax Reform Act of 1986” was enacted into law by Reagan on 10/22/1986, according to the New York Times. In the meantime, tax free/tax -deferred strategies will ideal for income investors in Metro Atlanta
This time age doesn’t always bring wisdom. After 30 plus years of watching the markets, this Bull Market March is very much like the beginning of the first administration of the Gipper when skepticism abounded and media attacks compounded, until economic growth took off in 1983. There is one major difference that savers and investors will have to confront this time around, however. The Bull Market of the 1980s started from a modern era all -time peak in interest rates and inflation. As rates fell and inflation subsided, the market took off. In the 1980s, it was not as if there were not any safe alternatives for yield-hungry investors. Investors could buy Treasury Bonds or CDs and earn double-digit returns. The current market has been on a roll for 8 years and investors have not had many alternatives.
Back then, stocks and bonds moved in tandem as prices on both assets went up. Today, warning signs are flashing as bond prices are going down and stock prices continue to go up. There are no warning signs of excess valuation as there were in 1999 or credit bubble as in 2008. The hope that normal economic growth of 3-4% could return with a massive Trump tax cut along with the fact that real returns after inflation and taxes on safe assets continue to be near zero may be creating an environment for a nasty correction as investors reach boldly for returns.
The warning today is not to get complacent as notable pundits and portfolio managers with excellent track records like portfolio manager, Robert Rodriguez and Nobel Prize winner, Robert Shiller, are firing warning salvos of an impending steep correction. Shiller, who called the housing bubble and coined the term “irrational exuberance”, even before Alan Greenspan, believe that the market is overvalued because interest rates have been artificially low. Rodriguez who is one of the few money managers with a track record back to the 1970s left in the industry is even more skeptical. In addition, the granddaddy guru of Bond Fund managers, who also has been running for nearly 50 years, Loomis Sayles Dan Fuss believes that 2017 Treasury note yields approaching 3% by year end will be the by-product of increased infrastructure spending and a stronger economy. Younger Bond guru, Jeffrey Gundlach believes the same, according to their respective websites at Loomis Sayles and Doubleline Capital. The Wall Stree Journal's Streetwise editor. James Mackintosh, said that valuations stand at the higherst level since 2004 and surpassed only by the dot.com bubble of the late 1990s. If these veterans are correct, bond investors will face significant paper losses. Very few stockbrokers and money managers, who are still not working under a fiduciary standard today, have ever managed in a prolonged rising rate environment
So, what is one to do. Here are 3 suggestions for savers and investors today.
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