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The BEAR CASE for The Stock Market:
The FIRST, and probably most “common” reason listed EVERYWHERE, is the resurgence of the new Ilnness - and the fear THAT MIGHT shut back down our economy.
Second, we have worries about EVEN MORE INFLATION.
Just recently, inflation was measured at 5.4% YEAR OVER YEAR, which was the largest increase on record in over a decade. Even though the Federal Reserve said that inflation was transitionary due to supply chain shortages, excess demand, as measuring from the bottom of the market…not even THEY were prepared for the numbers that came in, and that prompted the evaluation that - MAYBE - they’ll need to raise interest rates a little sooner than they expected.
Number three: Potentially lower company EARNINGS
Now that things are slowly “Getting back to normal,” as soon as pent up demand begins to stabilize - the worry becomes: are the BEST EARNINGS BEHIND US? And BECAUSE the stock market is FORWARD THINKING…it doesn’t care so much about the next few weeks, but instead…what’s going to happen in the next YEAR? And…right now, it looks as though investors feel like things will start to slow back down.
Fourth…IF earnings start slowing down…then company VALUATIONS are going to come into question…and, you know what THAT MEANS…stock PRICES will go down.
And FIFTH - we have FALLING BOND YIELDS.
But, the Bull Market Case is as follows:
First, JP Morgan thinks a lot of these concerns are overblown - and the SP500 will end the year around 4600. Plus, many re-opening stocks are 30-50% off their recent high - so, that could be a good value to buy in.
Second, Bloomberg reports that “A LOT of young people are going to buy the dip in stocks.”
This was noted by the fact that, FOUR other times this year - The SP500 closed 3% below a historic high, and each time it rebounded to another record.
Third, inflation could very well be TRANSITIONARY, like the Federal Reserve says.
This means that - once supply chains start working again, and labor restrictions begin easing up - consumers prices could start to drop back down, and that - in turn - will alleviate all the concerns of crazy hyper-inflation.
And fourth - if the new illness proves to be a cautious over-reaction - then, the market will likely adjust back up, accordingly.
That’s why - I think - the best course of action right now - is to simply stay the course, keep investing as usual…and, IF the drop market drops…BUY MORE. Sure, we could very well see a sustained downturn…but, we could also continue to see more growth…so, as long as you’re comfortable buying in on a regular basis, you’ll be okay.
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