"Fed" up?

The market turmoil continues and President Trump and everyone on street started talking about how Federal Reserve Bank (FED) is keeping its blinders on and intent on keeping up with its chosen path of increasing interest rates. Basically they are "Fed" up and wants FED to change its stance on interest rates. We had seen this movie before. Interest rates start going up, markets have tantrum hoping fed will chance its stance. Then monthly and quarterly economic indicators start coming and everything looks ok giving fed ammunition to keep up its course and then markets adjust back to normal. It's almost like markets have 10-year itch (there is 7-year itch term in relationships). It happened in 1987, 1998, 2008 and now 2018. While there would be some hit to confidence, recent market turmoil also helps take out the excesses and set a good foundation for further upside movement. Mid-term elections also add to the uncertainty even though most of the polls are predicting that congress will be split in which democrats taking house and GOP keeping senate. With such arrangement and recent economic background, President Trump is going to start talking about infrastructure bill in exchange for some concessions on immigration issue. Both are key policy topics for democrats so he will be able to make deals with Nancy Pelosi and Chuck Schumer.  The biggest issue to be resolved would be trade war with China. After elections, Trump and Chinese would start talking some conciliatory language giving impression that both sides want to resolve the issue and can avoid full blown trade-war. All of these would lead to markets coming to normalcy. So if you are long term investor, October had given good opportunity to cost-average your investments. So relax and enjoy Diwali and upcoming festivals!
/Shyam

October "NO" Surprise!

In politics "October Surprise" means any political event orchestrated (or apparently orchestrated) in the month before an election, in the hopes of affecting the outcome (from Wikipedia). In stock markets, October is known for sharp market corrections as seen during so many times(1929, 1987, 2008 and so on). So this October, its no surprise that we are having some gut-wrenching correction which exactly started on first day of October. Today and next couple of days would be critical in terms of momentum selling before it settles down and get ready for year-end rally. President Trump is calling fed "crazy" which almost feels like Turkey President directing its central bank what to do. (another similarity: both these presidents have their son-in-law in key government position). Last few weeks interesting political drama unfolded in which both parties tried to score some points with their constituencies by using Judge Kavanaugh's confirmation to Supreme Court. Mid-term elections seems to be heading for split government in which house will be controlled by democrats whereas GOP will keep Senate majority. And it may be good for markets. As they say "Gridlock = Goldilock" since no one party can do any major damage. In fact President Trump may be able to get its Infrastructure bill passed with house democrats and give another boost to already hot economy in which unemployment reached 49 year low.

As investor, what should one do? If you are invested in market, don't panic and stay invested. Exactly same sell-off happened in Feb and markets nicely recovered from that. It's going to be repeat of that. Markets would start gaining back as Oct nears end and by year end it will be high single digit return for 2018. If you are waiting to jump in market, timing could be tricky since finding bottom is always difficult. So I would recommend average costing over multiple weeks/months. That's all for mid-week update

/Shyam