This past week was kicked-off on Tuesday with news that China’s economy is slowing. Normally, news that China’s high-growth economy is slowing would precipitate a sell-off in stocks. But, this past week the slowdown news also came with suspicion that a China slowdown would usher in more intervention to stimulate the Chinese economy. Intervention, stimulus, and money printing are all terms that Wall Street likes.
The market returns year-to-date just goes to show that there are three ways to view investment research – fundamentals, technical indicators, and central planning analysis. Most investors look at either market fundamentals, technical indicators, or a mix of both to make investment decisions. Now, fundamentals are taking a backseat to central planning. Consider that JP Morgan and Citibank both turned in awful quarterly earnings reports in the last 10 days, which again are typically a drag on the markets. In the current environment, such fundamentals like slowing banks or a slowing China are taking a backseat to the possibility that central planners are prepared to save the day with more money printing or stimulation. While such interventions may help markets temporarily, they come with medium and long-term consequences like inflation or continued financial repression.
I maintain that caution is to be taken in stocks by investing in defensive areas such as high dividend-paying US large-cap stocks, utilities, consumer staples, energy, and food-based stocks. And, by all means, avoid global large banks! Any bond investments should continue to be watched closely, and precious metals should be part of any strategy to address purchasing power loss and currency destruction. In the short-term, stocks could see some more lift, but the upside is limited. The downside possibility from Europe, China, or even the political dysfunction in the US could be very powerful.
Do you have an investment strategy that seeks to protect your portfolio against volatile economic conditions? Call me to schedule a free review of your current investment portfolio – 913.402.6099.
John P. Chladek, MBA, CFP® is the President of Chladek Wealth Management, LLC, a fee-only financial planning and investment management firm specializing in helping families and couples who are not yet retired realize their financial goals. For more information, visit https://www.chladekwealth.com.