March 09, 2018
Goldilocks is back. For now.
This is a great time in stock market history to remind ourselves of an old Wall Street saying: One month does not a trend make.
On February 2
nd, the Government's non-farm payroll report delivered a mild upside surprise in wages, causing stocks to get mauled for a week and a half. They recovered so well by the end of the month that you barely would have noticed the drop if you just went by your month-end, February account statement. But in the thick of the moment, when the stock market sank 10% in warp speed, it seemed like the bull market was over. The thinking was that the Federal Reserve would slam on the brakes (by quickly raising short term interest rates that it controls), cool the economy, and send stocks into a bear market.
Today's (March 9, 2018) Government non-farm payroll report was the complete opposite of last month; a breathtakingly stunning report that quelled investors' fear that the FED would slam on the brakes. 313,000 jobs were added to payrolls while wage growth came in lower than expected. Even more impressive is that over 800,000 people reentered the labor force, convincing investors that the labor market still has plenty of slack before employers have to jack up wages to attract more workers. This set of conditions, economic growth with low inflation, is called "Goldilocks economy"; an economy that is not too hot to overheat, not to cool go into a recession, but just right for stocks.
So, let me ask you an important question. Which of the two payroll figures do you go by? I have my answer, but believe me, this is the existential question for investors today. I mean, how could we get such opposite reactions to payroll figures in just one month? Did things really change that quickly? Or maybe economic statistics are uneven and we need to get used to the stock market's split personality? Remember, one month does not a trend make. The last month is one heck of a reminder.
In between these payroll figures we had news of tough, across the board steel and aluminum tariffs, which were later watered down, and news of a face to face meeting between President Trump and Kim Jong Il of North Korea. Then there is the ongoing Mueller investigation and Gary Cohn, formerly the Director of the National Economic Council and President Trump's chief economic advisor, leaving the Administration. We're in an investing environment where anything can happen. Yet, the NASDAQ set a new record today and the DOW and S&P 500 aren't too far behind. Forget saying that stocks are climbing a wall of worry. They're running the 400 meter hurdles like Edwin Moses - winning an astounding 107 consecutive finals while making it look easy! In my
post last week
, I pondered if March will give us a month-end, repeat performance like February and recover its losses by March 31st, 29 days away. Exactly a week later and it's already mission accomplished.
And now here's my answer to the above question about which payroll figure I am going by. It's both. I know, that's a very basic and safe answer. You see, in my business, there are the product-centric salespeople who come off as advisors and there are the advisors who are client-centric and who do not come off as salespeople. The former count on the near term performance of their recommended products to determine if you are moving closer or further from your goals. The latter is product agnostic, believes all financial products are merely tools, and goes by clients'
risk tolerance, goals and time horizon
. An advisor educates his or her clients about what could happen in the investment world and how their advice and portfolio are expected to get clients through volatile times. An advisor doesn't use fear-based and greed-based sales tactics and certainly won't come off as an expert in everything, but will definitely know your situation well enough to bring you to knowledgeable experts to help you fill in any blanks in your long term plans. I bring this up because if you are the client of an advisor, not an advisor/salesperson, then you didn't need to change your entire investment portfolio from one month to the next. It's more like you know that you have a workable, flexible, diversified, long term strategy that provides you the kind of understanding that allows you to stay invested for the long term.
From my perspective and that of my clients, this is what the last two payroll reports mean to us.
Nothing more, nothing less.
And now, check this out:
It was a privilege to write this for CNBC, March 2, 2018
Here's the most alarming market message: So-called safe havens aren't so safe
-When it comes to stocks - any and all stocks - and bonds with a time to maturity greater than a year, there are no true safe-havens. They don't exist.
-I've seen this movie before. When interest rates rise, it's always the same group of conservative investors who were overreaching for yield who wind up getting burned.
Click the image below to read it:
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