My Stock Market Update & Outlook

A message to all investors from a Portfolio Manager since 1996!
With all of this market volatility, sometimes not doing anything is the best play.  There are a lot of issues right now with Elections, Trade Wars, 10yr Bond Yields rising and Federal Funds rate increases to sort through.  I am not giving up on the market, however, just because the market is low now doesn’t mean it will snap back right away. 
I am worried we are getting to a point where stocks that have gone up over the past couple years a tremendous amount may be about done, and actually have a large downside ahead.  I don’t see a economic downturn for a couple years, however, the Stock Market may very well keep selling off, as Growth stocks can’t keep growing at the rate they were the past few years, causing their stock prices to decline further.  Stocks that have not risen 100+% over the past year should not see a large decline in the coming months, as compared to several high flying Tech stocks.
If you watch financial shows or read financial experts talking about the Economy, Stock Market & Federal Funds rate, you generally hear Federal Funds rate increases hurt companies because their Debt becomes more expensive & will hurt future earnings.  Although these facts are true, WHEN does it hurt companies future earnings & projections is the million dollar question.
If we look at the past TWO Stock Market crashes, they both happened about 18 months AFTER the Federal Funds rate went above 5%, right now we are at 2.25%.  This does not mean it will happen again this time around, however, it does put into perspective all this talk about how increases in the Federal Funds rate will immediately hurt company earnings & projections, thus, causing the Stock Market to keep selling off. 
On September 26, 2018, the Federal Reserve signaled it would raise rates to 2.5 percent in December 2018, 3.0 percent in 2019, and 3.5 percent in 2020.
The volatility in the market moving forward will primarily be made up of Economic news, Corporate Earnings & Projections and Federal Funds rate increases.  As long as the economy is not growing to fast, thus, causing the Fed to rapidly raise rates, we should see the markets Drop on good Economic data, Federal Funds rate increases, and Rise based on corporate earnings & profit projections.  Once corporate earnings are slowing dramatically, projections are lowered & Federal Funds rate keeps rising, that will cause the Stock Market to Drop, and stay low for a normal Economic Cycle.
Keep Cash available to reduce exposure to stocks for the coming weeks, especially until after Mid-Term Elections.   If there continues to be steep sell-offs in the market, you have Cash to buy good stocks cheap.
If you have a 401k, I wouldn’t panic sell right now, however, in the coming months when the Stock Market starts to recover, I would be slowly reducing exposure to your Equity Mutual Funds.   One good option would be to look at the most Conservative investment option you have, as it should be paying 3+% dividend yield, and have no exposure to the Equity Market. 
DO NOT stop putting money into your 401k, even if you are not investing in Equity Funds, as you want to keep the benefit of reducing your Taxable Income. 

If you have any questions please let me know, I am always here to help you the best I can!

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