What goes up must come down . . . except when it doesn’t!

It has been 14 months since the stock market had a 5% drop, compared to an average of 6-9 months.  It has been 20 months since it had a 10% correction, compared to an average of 12-14 months.  In other words, we are overdue.  So what?

While the economy and the stock market are two different things, they are connected, and the economic data continues to look fine, not great but fine.  Economic recessions are much easier to predict that stock market corrections.  Besides, normal run-of-the-mill recessions are nothing to be feared anyway.  That’s when you “buy and hold.”

Geopolitical problems can always depress the stock market, but they are usually transitory.  The destruction of the Korean peninsula would not permanently depress the market but would cause a temporary 10% correction or so.

Many of the rules-of-thumb that have helped us navigate the stock market for decades seem less helpful in this environment, and this is important — we have been in an artificial economy since 2009, suspended from reality by the Fed.  That is not a complaint – the Fed saved us from a depression by their extraordinary efforts.  The “animal spirits” that drive a strong economy cannot surface while we are in “suspended econimation.”  The Fed knows this and wants to increase interest rates and shrink its balance sheet.  They have repeatedly stated their intention to do both, only to delay their plans.  President Trump is likewise a dove on interest rates, preferring low rates and a weak dollar.  He will not be pushing the Fed to do what it needs to do and what it wants to do.

The longer we live in a state of suspended econimation, the more difficult the return to economic reality in the future.  In the meantime, investors should just enjoy the ride . . . while always keeping their finger near the SELL button.