Trump’s Thursday tweet about Mexican tariffs came after the market close…as expected, stocks were down significantly on Friday.
So is this time to fear? I don’t think so. US corporate profits are sound and international valuations are below average- the time to buy isn’t at the top, it’s when investors are fearful. As I mentioned last October (listen here: https://www.wealthsteading.com/276 ), the problems with the current market are not EXISTENTIAL threats (like diminishing natural resources), but rather issues of government(s) policy. Course can be changed with the stroke of a pen…or a 280 character tweet.
As such, I remain cynically optimistic because I see two long term outcomes:
- Trump’s policies work and the market goes up.
- Trump’s policies fail and he changes course or the next president does…and the market goes up.
As a long term investor, ultimately I think it’s a good idea to buy into the market on “dips”…CAVEAT: as long as the economy isn’t headed into a recession. With interest rates extremely low, money easily available, and the Feds more likely to cut interest rates than tighten- I don’t see a recession on the immediate horizon. This is the case I’ve been making for two years.
The S&P500 closed slightly below its 200dma, but with only slightly higher volume than average, and below average volume for the week. Not exactly a head for the exits panic. My interpretation of Friday’s sell off is that it was more of an “algorithm jerk” reaction to headlines than a smart money selloff.
So why didn’t I add to my positions on Friday to take advantage of the dip? My watch list was ready; however, all afternoon the market kept moving lower and yet the VIX barely moved above 19. A fairly tame VIX was more evidence to me that this wasn’t a smart money selloff, but was also an indication that there wasn’t widespread capitulation (usually the sign of a market bottomed). I’ll wait to see if this week starts out with a “black Monday” selloff.
In any case, I decided to wait, and will most likely make some additional purchases this upcoming week. Stay tuned for more details.
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