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
Dozens Help Central Berkshire Habitat For Humanity On MLK Day of Service
Williamstown Community Preservation Panel OKs 8 Applicants
Community Helps Boys & Girls Club Replace 40-year-old Zamboni
North Adams Downtown Readying for Mass MoCA Opening
Berkshire County Women Head to DC Women's March
Glider Activity Moved To South Side Of Airport
'Hidden Figures': Amounts to an Important Tale
SVMC OB/GYNs to Appear on WAMC's Medical Monday
'Travel Photography for Everyone' Begins Jan. 25
SVMC Helping Train Paramedic Students Learn to Intubate

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 (215)
Independent Investor (295)
Archives:
January 2017 (1)
January 2016 (1)
December 2016 (2)
October 2016 (1)
September 2016 (9)
August 2016 (5)
July 2016 (7)
June 2016 (7)
May 2016 (5)
April 2016 (7)
March 2016 (8)
February 2016 (5)
Tags:
Energy Wall Street Recession Currency Deficit Interest Rates Banks Rally Economy Debt Ceiling Markets Oil Stimulus Pullback Greece Stock Market Taxes Housing Europe Euro Jobs Metals Election Fiscal Cliff Commodities Stocks Crisis Selloff Bailout Debt Retirement Japan Congress Federal Reserve Europe
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: Gyms Are Counting on Your New Year's resolution
@theMarket: Stocks Bump & Grind Toward Christmas
@theMarket: Has Santa Claus Come & Gone?
@theMarket: Day Traders Rule the Markets
The Independent Investor: Dementia & Your portfolio
@theMarket: The Same Old Song
The Independent Investor: The Impact of One Bad Apple
@theMarket: Much Ado About Nothing
The Independent Investor: Woman Need to Invest More
@theMarket: Markets Get Back to Business