Everyone Is Right!?!
That is correct- EVERYONE IS RIGHT and making money in the financial markets at the moment. There was a brief moment last month where the US Markets started to pull back and slide a bit due to the rising nuclear war tension in Asia between the US and North Korea.
As soon as the tension reached the peak with everyone holding their breath the markets had already dropped +/-5%! This is when you heard EVERYONE saying ‘here it comes’ and ‘this could be the pullback we have all been waiting for’ and ‘expect another 15% as investors take profits off the table’, etc. Well, the first ‘test’ has come and gone and I will explain how ‘everyone is right’.
Let me start with the market BULLS. The bulls are full steam ahead and are not adhering to any of the warning signs Wall St and the big money managers are yelling at the top of their lungs on a weekly basis. The bulls are right if you look at it from the perspective of ‘what else is there to invest in and give me a decent return?’ The US economy is on track with the unemployment rate way down, interest rate increase is on hold, and corporate earnings were astonishingly better than expected across the board this last earnings session. It feels like 1999 again. Everything is going up and what could possibly be the spoiler event to keep the market marching towards 25,000? A new war? Another big terrorist attack? Nuclear war? We have experienced the tech bubble and the housing collapse and witnessed the long and strong recovery over the last decade- yes it has already been 10 years! So, until the US interest rates start increasing at a consistent and predictable clip there isn’t any market sector that can compete with US equities. This recent +/-5% pullback was nothing more than buying opportunity and we can expect the same activity again when the market dips.
As for the market BEARS, they are beginning to lick their chops. All because each day that passes and the market is up they are one day closer to the bloody markets. The downturn will happen and it will be big. When the North Korea and the US started trading heavy words and threats the bears were more than ready as the market dipped in a predictable manner. The bears are right about the market if you look at it from the perspective that the market is extremely over bought, consumer credit card debt is at its highest ever level and only increasing, and the current USA’s world stage leadership is totally reckless. It is a matter of time before the market balances out and corrects and in the mean time it is providing bears with good short selling opportunities across the equity markets.
So, as you can see, both sides of the market are ‘right’ with their viewpoints and both sides have been recently rewarded from the markets. While the US Dollar ($) stays stable to weaker versus other major currencies in the short term (before the year end 2017) the mentioned scenarios will continue to play out. US interest rates are anticipated to increase before year end 2017. The unemployment rate is anticipated to stay low and below the +/-5% ‘ideal’ benchmark. Until interest rates move up the equity markets will continue to soar.
Another sector deserving attention for its performance is Cryptocurrencies. If you read my blogs then you already know I am HUGE fan of Cryptocurrencies and believe that the technology behind them will be the future for the financial sector. Bitcoin(BTC) rocketed up last week and broke the $4,000 and $4,500 level for the first time. Ethereum(ETH) remains stable around $300 and is poised for an upside breakout. The main points to take away from this sector is that Cryptocurrencies are extremely volatile, still in its infant/toddler life stage, and are part of the financial future. Large corporations from different sectors across the globe are incorporating fintech into their business culture and future. And, interestingly enough, during the recent small drop in the US market last week Bitcoin soared. Yes, Gold increased in market value as well but Bitcoin was insanely crazy and please remember that there is absolutely nothing- NOTHING- that can replace Gold and the value it provides financially and psychologically. So, if you can stomach the ups and downs in volatility then definitely get involved and start investing/trading with a plan.
There you have it. To summarize, the volatility present in the markets is providing both sides of the market some very good opportunities. There are very, very few sectors able to compete with the US equity markets at the moment and Cryptocurrencies is one of them but you will need thick skin.
So, more of the same for the US equity markets and US dollar until the Fed raises interest year end or some military crisis takes place and reshuffles.