Home About Archives RSS Feed

@theMarket: Geopolitical Risk Trumps Economic Growth

By Bill Schmick
iBerkshires Staff

The front page of most newspapers on Friday featured at least three hot spots around the world that has investors worried. None of them may be anything to worry about over the long-term, but over the next few weeks they have the potential to drive the stock market lower.

You may ask, why now? After all, the situation in Ukraine has been going on all year. Turmoil in the Gaza Strip has been a reason for concern for far longer. The Iraqi Shiite/Sunni fighting has plagued us for months. About the only new threat that has arisen over the past two weeks has been the occurrence of a number of cases of Ebola Virus. So why have investors suddenly decided to embrace these concerns as a reason to sell stocks?

Investors need a reason to sell and so does the media. Simply selling because the market's price levels have gone too far or because we haven’t had a sell-off in a while are simply insufficient reason for most of us, we need an excuse to sell and now we have them.

Don't get me wrong; the world is a mess right now. As I wrote yesterday in my column "Beware the Russian Bear," the situation in the Ukraine is fraught with danger. The escalating embargos that are flying around between the EU, the U.S. and Russia certainly have the potential to hurt global growth. President Obama's decision to authorize air strikes in Iraq is clearly a new development, while financial problems among the Portuguese banks have soured investors on

While geopolitical risks move to the front burner, the economy, unemployment, wage growth and what the Fed is going to do about it have receded to the back burner. Interest rates continue to drop, despite the end to quantitative easing in October. The employment gains are accelerating, forecasts are now around a 3 percent growth rate for U.S. GDP in the third quarter while corporate earnings, for the most part, appear to be growing even faster than expected.

But, remember, the stock market and the economy are not the same thing and therein lies an advantage to profit. Right now (and possibly over the next month or two), the stock market will remain volatile with a downside bias. I would expect the S&P 500 Index to re-test its 200

day moving average (DMA) which is at 1,861 or so. That’s another 2 percent-plus down move from where we are now. It may take several days or even weeks to get there.

Usually, the market will bounce at that point. Nothing says that bounce will be sustainable and in most cases will result in disappointment and another re-test of the 200 DMA.

What happens next will depend on how investors handle the decline. Usually, declines end in a bout of panic selling; something we have not seen yet. We could easily go lower than the 200.

Some perma-bears are calling for a 20% correction depending on who you read. Right now, I would say those forecasts are a bit extreme. Maybe half that amount is where I stand.

But remember folks, we are talking about paper losses. The growing economy will provide a cushion of support for stocks. This could actually turn out to be a great buying opportunity for investors in the weeks ahead. At the beginning of the year, I forecasted a 5-6 percent gain in the S&P 500 Index for the year. I don't see any reason to change it. I believe next year will offer much better gains, so keep your powder dry and wait for lower prices. You won't be disappointed.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

0 Comments
     
News Headlines
Williams Lego Challenge 'Bridges' Math, MLK, Charity
SVMC Expands Program for Patients with Chronic Lung Disease
Annual Father Daughter Dance Set for Feb. 21
Cultural Pittsfield This Week: Feb. 5-11
Public Forum Set on Mount Greylock Building Project
Adams Continues Strategic Planning Process
Election 2016: Presidential Primary Voting
Clarksburg Resumes Search for Town Accountant
'Jane Got a Gun': Misfires
Adams Boy Recognized For Saving Mother's Life

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (191)
Independent Investor (263)
Archives:
February 2016 (1)
February 2015 (7)
January 2016 (5)
December 2015 (6)
November 2015 (6)
October 2015 (9)
September 2015 (7)
August 2015 (7)
July 2015 (6)
June 2015 (8)
May 2015 (6)
April 2015 (8)
March 2015 (6)
Tags:
Greece Energy Markets Stimulus Federal Reserve Fiscal Cliff Commodities Housing Bailout Interest Rates Oil Fed Japan Jobs Taxes Stock Market Crisis Stocks Deficit Rally Europe Pullback Currency Recession Congress Election Europe Euro Banks Economy Retirement Debt Ceiling Debt Selloff Metals
Popular Entries:
The Independent Investor: Don't Fight the Fed
The Independent Investor: Understanding the Foreclosure Scandal
@theMarket: QE II Supports the Markets
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
The Independent Investor: Will the Municipal Bond Massacre Continue?
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: How Will Wall Street II Play on Main Street?
Recent Entries:
The Independent Investor: Is a Recession Looming?
The Independent Investor: The High Price of Cash
@theMarket: Stocks Rebound
The Independent Investor: This Too Shall Pass
The Independent Investor: A Tale of Two Chinas
@theMarket: Nowhere Land
@theMarket: Santa Comes to Town
The Independent Investor: Christmas in the New Age
The Independent Investor: How Rising Interest Rates Will Change Your Life
@theMarket: Where Oil Goes, So Goes the Market