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The End Of The World As We Know It?

The title of this hit song by the rock band R.E.M. seems to sum up the mood of many investors these days: It’s The End Of The World As We Know It (And I Feel Fine).

Leading up to the November 8 election, the chattering class had reached an overwhelming consensus: a surprise win by Donald Trump would be catastrophic for the global financial markets. Investors would panic, sending stocks into a tailspin. Or as Professor Venkman of the movie Ghostbusters might have put it: “Human sacrifice! Dogs and cats living together! Mass hysteria!”

Well, it didn’t happen.

In fact, fear of Trump gave way to a powerful “relief rally” and renewed investor optimism. Markets in late January largely pulled back, but pro-business initiatives this week from the fledgling administration have given the Trump surge new life.

The S&P 500 and Nasdaq reached record highs on Tuesday, indicating that this nearly eight-year-old bull market still has some mojo left. And yet…

Stocks as a whole are overvalued and overdue for a correction; most economists are calling for a recession in 2017; political rancor is likely to prevail throughout Trump’s reign; interest rates will remain on an upward trajectory throughout the year; and trade wars between America and countries such as China and Mexico are increasingly likely.

Will investors still feel fine in 2017, or have we merely deferred the apocalypse?

Walking a tightrope…

Let’s turn to our in-house experts for advice.

Linda McDonough, chief investment strategist of Profit Catalyst Alert, urges you to resist the temporary passions of the moment and calmly bide your time for the right opportunities:

“Navigating the market these days feels like walking a tightrope. One day the market is ebullient because wages are rising and productivity is improving, and the next it’s sinking into the doldrums.

Retailers, buried after reporting dismal holiday sales and earnings, soar 24 hours later on take-over scuttlebutt. Drug stocks, solidly bouncing from enthusiastic value buying, get tanked shortly afterward when President Trump rails about high prices.

What’s an investor to do? I find it best to sit tight when the market is frantically trying to restore balance, but be ready to strike.”

Ari Charney, chief investment strategist of Utility Forecaster, cautions investors who hope that President Trump’s plans to massively boost federal spending will stimulate the economy:

“We recall that at the time of the Fed’s last victory lap in December 2015, the central bank had expected to raise rates four times in 2016.

Whoops! Seems like events got in the way.

Though fiscal stimulus would certainly be welcome, we don’t think the deficit hawks in Congress are just going to be giving money away, at least not entirely.

For instance, Republican policymakers are reportedly considering offsetting corporate tax cuts by eliminating the deduction for interest payments. That means the net effect of the most sweeping form of stimulus may not be nearly as dramatic as the market is hoping.”

Robert Rapier, chief investment strategist of The Energy Strategist, warns against the mounting exuberance now propelling the energy patch:

“Energy bulls are back and in a lather, and they’re starting to keep us up late some nights.”

Robert is worried that energy investors “may have forgotten the lessons of 2014 and the definition of ‘winner’s curse,’ if they ever knew it. The degree of enthusiasm out there is making us question how much gas the energy rally has left in its tank.”

Jim Pearce, chief investment strategist of our flagship publication Personal Finance, says the immutable laws of market cycles don’t bode well for the coming year, but then again, you should always expect the unexpected:

“If you’re trying to predict what’s in store for the stock market in 2017, after eight straight years of positive returns, good luck. There is a historical precedent for a ninth consecutive year of gains, and it’s still possible 2017 could be another winner.

But there’s also ample evidence that the stock market may be about to take a giant step backward after its current hot streak. Plus, every year produces twists that no one predicted.”

Warren Buffett once famously said: In the short term the market is a popularity contest; in the long term it is a weighing machine.  The prospect of a laissez-faire presidency got Wall Street’s “animal spirits” racing in the immediate aftermath of the election. But you still must weigh the dangers ahead.

Need advice on how to cope with all of this uncertainty? Send me an email: mailbag@investingdaily.com — John Persinos

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