Well, so much for early year investment inflows and more new highs and fewer new lows in stocks pointing to market stabilization. I was wrong about that. Stocks have been hit hard by the oil price free fall since my last post on January 5. Selling begat selling and now we are down 10% for the year on the S&P, but a whole lot more on many, many individual stocks.
Anybody who says they know what markets will do next lacks credibility. Investors big and small are suffering from massive uncertainty:
- What will happen to oil prices? who ever thought we’d see $30 per barrel. Now we’re headed for $20?
- Will the Fed follow through with rate hikes in what appears to be a softening U.S. economy? Will Fed heads stop making contradictory and de-stabilizing comments? (This would help.)
- Can the Chinese successfully manage the transition to a consumer driven economy from a manufacturing economy in light of the miscues they’ve already made?
Stock charts are not supportive. the technicals feel like we have more work to do on the downside in order to shake stocks out of weak hands. An announcement by the Fed that rate hikes are on hold for the time being, or an announcement by Saudi Arabia or Iran that they will moderate production could be helpful. The former seems possible given a slower than expected economy, but the latter seems a real stretch given Saudi Arabia’s track record, the Iranians need for cash, and the bitter rivalry between the two countries.
What to do? Be defensive. Hold core positions but let go of tertiary and duplicative stocks and funds. Raise some cash in your investment accounts to reduce volatility. Wait for signs the Fed is staying their hand and/or the economy is holding up. (Europe is still stimulating and some economic numbers are improving. If this continues it could help stabilize our market.) Whatever the news, it just might be that our market wants to wear a 15X P/E not the current 16X P/E.