Recent headlines have featured flares between world leaders at the present G7 conference, a developing trade war, and the NBA Finals. Current events have caught investors’ attention; however, what effect will current events have upon today’s stock markets?
Current events come and go, and investors must look beyond the headlines to see what is driving and influencing today’s stock markets. Investors must be aware of the general market cycle, where we are in that cycle, and how current events might play out in today’s stock market. To gain these insights, you must look at facts, figures, and sentiment, and place them in the larger context of history and the present day.
In our investment process, we ask ourselves what can go right and what can go wrong in today stock markets? To explore the negative side of this coin, you may ask “What can bring the current stock markets tumbling down?” This intriguing question is timely as this is the second longest bull market in history, and our investment committee discussed this very subject last month.
History shows us that bull markets don’t die of old age. Rather, something has to kill them off. Bull markets usually end usually because of an event or structural economic issue.
The 2000 stock market implosion was linked in part to the demise of overvalued and worthless “dot com” companies, leading to the dot com crash. In 2008 housing prices soared, becoming unaffordable for the average home buyer, Lehman Brothers declared bankruptcy, and the markets tumbled.
So again, what can bring today’s stock market down?
Rising interest rates?
An unpredictable President’s actions relating to foreign and domestic matters?
A trade war?
- The US-North Korea summit in Singapore on June 12?
- Today’s higher oil and gas prices?
At this time, no one factor looks likely to cause an imminent decline in the stock markets. Of course, you can never see a severe decline coming, despite what pundits may say. Declines happen in real time and it takes time for them to unfold and be confirmed as a significant decline and not a head fake.
As of today the stock markets are up for the year. Though it is not certain, it looks likely that the stock market will test and reach the stock market high water marks established earlier this year.
So what will happen if and when the stock markets reach the highs set earlier this year? Two scenarios appear likely.
1. Break through the previous high water level and go on to new highs
2. Test the previous highs, fail to break through, and fall into a trading range
At the moment, the stock markets and the economy are relatively steady. As longer term investors, Fortress encourages you to keep your larger, long term goals in mind at all times.
Meanwhile, we continue to monitor the markets closely and will stay in touch.