There are no stock answers to vagaries of the stock market
The stock market has been a roller coaster recently. We have experienced a 10 percent correction. The year has been pretty flat overall. Most of the 2018 gains have been from a limited number of stocks.
The FANG stocks – Facebook, Amazon, Netflix and Google (now Alphabet) – have been some of the biggest gainers, and have been under increased pressure lately.
Facebook got some very negative publicity from the false sites that were used to influence elections and other privacy issues. Apple has been hit hard since it announced recently that starting in the fourth quarter, it will no longer report unit sales of products. Kevin O’Leary of TV’s “Shark Tank” immediately sold the shares of Apple held by his investment company.
O’Leary and other investors fear this change may be to hide slumping sales figures. Apple operates in a closed environment and at a higher profit margin than many of its competitors.
The stock market has gone up since election results were announced. Historically, the market does well when there is a split government. The Republicans control the White House and the U.S. Senate, and Democrats will take over the House.
There is a belief infrastructure improvements is one area where there may be some bipartisanship. That would benefit certain companies’ stocks. Also, the split government will not be able to undo some of President Donald Trump’s pro-business changes that have been fueling the economy and stock market. And that may slow down the president’s trade war.
The economy is the best it has been in many years. Unemployment is at a 49-year low. But there are unresolved problems that could derail the economy. Rising interest rates, a growing deficit and out-of-control health-care costs are potential threats.
Health-care expenditures now consume 18.2 percent of the gross domestic product. In 1960, that figure was only 5 percent. This is an increase of 260 percent.
Americans spend twice as much as other high-income countries, but we are not healthier. Our life expectancy is three years less than nations such as United Kingdom, France and Australia. We have a higher rate of obesity and infant mortality. Our smoking rate, however, is lower than some other countries.
How long the market recovery will last is anyone’s guess. There will be a bigger correction sometime. It always happens. Many people I know are taking too much risk for their age and time frame.
These same people who lost tens of thousands of dollars in weeks often believe they need to recover these paper losses before they reallocate to safer assets. This can be dangerous. Unless you just put actual cash in the market, you only have a paper loss. Don’t get caught up in the hype that the market is a great buy just because it was higher a month ago.
If you are young, the stock market may be a great investment. If you are retired or close to being so, you need to make sure your asset allocations match your risk tolerance and time frame. No one can time the stock market. It would be foolish to try to do it.
Gary Boatman is a Monessen-based certified financial planner and author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”
To submit columns on financial planning or investing, email Rick Shrum at rshrum@observer-reporter.com.