We’ve been waiting for a serious investment markets correction that has not materialized. Despite the absence of any reason for the experienced exuberance over the last 12 months, the promise of a tax modification and the repeal of the Affordable Care Act were feeding the atypical new index highs. If none of these two pivotal campaign promises take place, there may very well be an actual running for the exits and the market could potentially correct as severely as expected.
However, if the tax bill becomes law and the country begins to repatriate the $5 trillion sitting in foreign countries, the US economy will be primed for new growth. It may not shoot to the stars as most anticipate after a life-changing tax legislation of this magnitude would trigger because the market has already traveled half-way there, so the growth may be less than half as much from here, which will permit a re-entry of the cash on the sidelines with more confidence.
It’s fair to state that any additional allocations of capital to securities doesn’t mean investors would be protected from the inherent risks of the market. Any unsettling event could still trigger a typical correction, as expected cyclically in healthy markets. Not all corrections become a dire loss of capital with little hope of returning to the highs. Quite the contrary, corrections are efficient. We need them in the market. They re-align investors with the reality on the ground of operations and actual revenues, realigning expectations.
The Fed’s unloading of its current book after all the versions of Quantitative Easing for years will undoubtedly run into bumps on the road. Nevertheless, we have a new Fed Chairman who appears to be of the same stripes as the last three. I don’t expect any surprises there, thankfully.
In closing, as always it’s important to remember that only money that would not result in a drastic change of lifestyle or hardship should be allocated to investments in securities of any type, as losses could be partial or total when money is placed at risk.
As always, your concerns are worthy of sharing.