This is no time to snooze. This week was one for record books for the massive amount of incomplete news, the mixed outcome of some important economic stats and the unruly price action of the broad indexes, up one day, down the next. For the most part, its business as usual, but with the markets at such lofty levels for the year, I see the goal should be to remain cautious and ignore the more impulsive investor behavior in favor of a protective strategy. Here’s why.
With the equity markets continuing their impressive year, getting the most recent lift from the optimistic expectations stemming from current tax legislation, the facts are still elusive. I have as much to like and dislike from what I’ve read and my overall take away is that the potential of the markets to rise on the circumstance and sell on the outcome has rarely been stronger. That said other investment environments and external events are serving as strong distractions, including, OPEC cutting oil prices, bitcoin rising to record levels on the back of an announced launch of a tradable futures contract by Dec 18th, and what turned out to be a very good earning season especially for the retail industry, always a good sign for the markets and the economy.
Between the recent estimate upgrade of the 3rd Quarter GDP from 3.0% to 3.3% and the release of the highest consumer confidence level in 17 years the economic news has been mostly good. I say mostly, because among the contributors to recent volatility in the markets has been a decline in the Chicago PMI manufacturing index, albeit from larger than normal recent rise it is still worth paying attention to. Mainly because as most of the positive news focuses on indicators that suggest continued downward pressure on the unemployment rate and potential higher inflation, inflation could become a problem at some point too.
In the meantime it’s hard to imagine the fed won’t increase interest rates at their next meeting on Dec 12 and 13th. With good economic data that comes from consumer’s activity the outlook for inflation still seems the primary incentive as well as Europe is showing similar signs of pressures. However, rather than talk much about the reporting board the outlook for the expiration of the current chairpersons term is leading the concern as to whether the incoming replacement will raise rates too aggressively. No reason I can see for that happening but the news adds to the current market volatility.
Which bring us to the nerve center for market volatility. While much of the media activity swirls around the current administration the financial markets have managed to focus on the economy and corporate activity instead. Good thing, since there is much that will eventually come out of the current political dilemmas that will get a fair spin that an investor can act on.
There you have it, a rising market, lots of volatility and very few answers to much external activity. Generally I choose to shift to more large cap and dividend friendly investments to be better prepared for any unexpected surprises. I still think the year will end on a high note, so I’m more looking into the first quarter of next year.