Market Update – May 2019
Spring time has arrived in both the Rocky Mountains and the markets. Lately, we have been blessed with seeing green in the markets and in the valleys of Cody Country. Not a bad combination and not a bad place to be.
Climbing a Wall of Worry
This is an old Wall Street phase. Climbing a wall of worry refers to a market condition wherein the markets continue to trend higher, in spite of significant uncertainty. This is generally considered very positive and a sign of a strong bull market. There is always something to “worry” about in life as there is in the markets. Let’s take a look at just some of the recent worries.
We’ve been hearing about the possibility of a recession for quite some time now. So far, this has not come to fruition. The U.S. economy is not on fire, but it is certainly nowhere near recession at this point.
While initially, the markets sold off on the announcement of the commencement of the so-called “trade war,” the markets have since recovered and currently appear to be forecasting a successful U.S. / China trade deal.
The latest news on the trade front is the resurgence of a spat between the U.S. and the European Union. This tiff has been going on for 14 years and centers around aircraft industry subsidies. President Trump recently threatened tariffs on European products such as wine, cheese, motorcycles, and jetliners. As with the China trade issues, it is in the best interests of the U.S. and the E.U. to resolve these issues. Ultimately, global commerce would benefit from true, fair, and free trade, which is the removal of tariffs altogether.
With the 24/7 global media coverage we have today, it seems like we are always in the middle of a never-ending election cycle of one kind or another. Kind of like Walmart putting out the Christmas decorations in September. Domestic and World politics do affect markets. With the 2020 U.S. Presidential election campaign already in full swing, we can expect the markets to react to some of the rhetoric and campaign promises.
On the Geo-Political front, the crisis in Venezuela continues to be a concern for the markets, albeit presently on the periphery. The U.S. is presently contemplating a response to the recent arrival of Russian troops and supplies. Stay tuned on this one.
Generally speaking, free markets favor less regulation over more regulation; but what really gets markets in a tizzy is the imposition of “new” regulations. In a strange twist recently, Facebook billionaire Mark Zuckerberg asked the government for more regulation of the very business he is in. This move appears to be all about attempting to get out in front of what is coming anyway. Governments and regulators appear intent on establishing new rules for the internet.
Higher Taxes / Changes to Capitalism
America’s billionaires are calling for higher taxes; primarily on themselves believe it or not. Billionaire hedge fund founder Ray Dalio is quoted on 60 minutes as saying that “American capitalism is not sustainable and the nation could be headed toward a conflict between rich and poor.” Not everyone agrees with this position, however. In response to Democratic Politician Ocasio-Cortez’ suggestion that the wealthiest Americans should pay 70% of their income in taxes; former Fed Chairman Alan Greenspan said such a policy would result in “a significant drop in economic activity”. While appearing on CNBC, he further added “Maybe I better make myself clear, I think it would be a terrible mistake.”
This represents really the age-old argument between the Keynesian economists and the Supply-side economists philosophies. I don’t see this philosophical debate going away any time soon.
So, as you can see, there are plenty of things to worry about if one is hell-bent on worrying. From the Tulip mania market crash of 1637 in the Netherlands to the financial crisis market crash of 2007-2008 in the United States, financial markets have climbed countless walls of worry. It seems we have, once again, roped up and put our climbing shoes on! So, On Belay!
Until next month!
Enjoy the Green!
This report was prepared by O’Donnell Wealth Management and reflects the current opinion of the author. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
The author, Stephen P. O’Donnell Sr., is President of O’Donnell Wealth Management, a financial planning and asset management firm located at 1306 Sheridan Avenue in beautiful Cody, Wyoming. Steve has 18 years of experience, having worked as a portfolio manager for some of the largest firms on Wall Street. For a no cost, no obligation, initial consultation, call 307-586-4279, email, or simply stop by the office Monday through Friday.
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