How to handle the recent market uncertainty
You've no doubt noticed that the recent headlines in the financial media have been filled with uncertainty...
The latest inflation reading was higher than expected, which likely means the Federal Reserve won't be cutting rates anytime soon. Here's the Wall Street Journal with more details: Inflation Heated Up in January, Freezing the Fed. Excerpt:
Consumer prices rose briskly in January, extending a recent pattern of increases at the start of the year that likely derails the prospect for Federal Reserve rate cuts anytime soon.
The Labor Department said Wednesday that prices rose last month 0.5% from December on a seasonally adjusted basis. That was the largest monthly increase since August 2023 and well ahead of economists' expectations for a milder increase of 0.3%.
The gain pushed 12-month inflation to 3% in January. That marked a pickup from December, when prices rose 2.9%.
Meanwhile, another recent WSJ article underscores the uncertainty about the new administration's plans for tariffs and other matters: Trump's Conflicting Business Policies Sow Economic Uncertainty. Excerpt:
It usually takes years for a president to leave his mark on the economy. Donald Trump has done it in just a few weeks. His plan to raise tariffs on Canada, Mexico and China has rattled markets and boardrooms. Some businesses are seeing signs that deportations could affect their workforces. More than 40,000 federal employees are preparing to resign and others are rethinking their futures under pressure from Elon Musk and his Department of Government Efficiency.
At the same time, President Trump's pro-business, pro-fossil fuel agenda has excited many businesses who have made multibillion-dollar investment announcements.
The end goal seems to be an economy with a smaller role for imports, immigrants and the federal government and a bigger one for private investment. But the execution has generated intense uncertainty – among business owners, workers and trade partners – that could damp growth, at least temporarily.
Meanwhile, the S&P 500 Index yesterday closed just 1% away from its all-time high.
It's enough to make you want to sell everything and just hold cash and gold, isn't it?
Don't do it!
We're more than 15 years into an extraordinary bull market that began in March 2009. And as I've written many times before, when you're in a bull market, ride it!
During that period, the S&P 500 has had 29 corrections of at least 5% – and, each time, the fearmongers came out in full force and the headlines were frightening, as Creative Planning's Charlie Bilello showed in a post on the social platform X this week:
But in each case, anyone who panicked and sold regretted it.
If we look at individual stocks, the story is even more extreme, as this chart in another post on X this week from Bilello shows with the "Magnificent Seven" tech stocks and streaming titan Netflix (NFLX):
Every one of them had a drawdown that exceeded the maximum the S&P 500 experienced (34% during the COVID crash), ranging from 37% to 76% and 77%, respectively, for Netflix and Meta Platforms (META) – both of which I pounded the table on to my readers near the bottom.
But again, look at the returns for those who didn't get spooked out and held on.
To be clear, there are times when savvy investors should prepare for a crash... but only when there are massive, obvious bubbles – not small ones like the meme-stock bubble in early 2021 or GameStop (GME) in mid-2024.
I very publicly identified two market peaks in early 2000 and early 2008, but such bubbles and subsequent crashes occur roughly once a decade.
The rest of the time, you should ignore the ever-present fearmongering in the financial media and – assuming you own good stocks (or an index fund) – sit tight.
As I wrote in my January 3 e-mail regarding my 2025 outlook:
My "spidey sense" isn't telling me to batten down the hatches, as it was in early 2000 and early 2008 before those big crashes.
There are two main differences: Valuations today, while high, are not in bubble territory... and I don't anticipate a big macro shock like the U.S. economy going into a big recession or a debt bubble bursting.
So while I'm not eagerly putting my cash to work – I'm quite happy finally earning a nice, guaranteed return on it – I recommend holding on to high-quality stocks and index funds you own (and likely have big gains on).
That said, you should have modest expectations. As I concluded on January 3:
I'll admit this is an outlook that many of my readers may not find completely satisfying... I'm not pounding the table to either buy or sell – or do much of anything except what my team and I here at Stansberry do every day: scour the markets to find an occasional gem that the market has overlooked or over-punished.
When my team and I identify this kind of opportunity, subscribers of our flagship Stansberry's Investment Advisory newsletter are the first to know. In fact, we just published our latest recommendation this past Friday in our February monthly issue.
If you aren't an Investment Advisory subscriber already, find out how to gain access to this brand-new recommendation – and the full portfolio of existing open recommendations – right here.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.