In today’s Steady Investor, we look at key factors that we believe are currently impacting market volatility and what could be next for the markets such as:
Oil Price War Sends Shockwaves – As the old saying goes, “When it rains, it pours.” Markets were already under stress, given coronavirus fears. But then came news over the weekend that Saudi Arabia was engaging in an “oil price war” with Russia after the two oil-producing giants failed to come to an agreement over supply cuts. The oil industry was already hurting from soft demand made softer by the coronavirus’s effect on travel. The Saudis originally wanted supply cuts to help offset softening demand and provide price support, but when the Russians wouldn’t cooperate, the Saudis made the bold choice of flooding the market with more supply – hoping to punish Russia and gain some of its market share. Saudi Aramco (Saudi Arabia’s oil behemoth) announced this week that it had received direct orders to raise output capacity to 13 million barrels a day, a significant increase from the 10 million barrels a day currently in production. This supply shock is bad news for US shale producers and the US energy sector at-large, which has been struggling to make a profit for years. We might reasonably expect a wave of bankruptcies and debt defaults for small shale companies like we saw in 2016, bringing further woes to the Energy sector. The upshot to the oil price war is that US consumers are likely to benefit from cheaper gasoline, with some estimates showing that lower oil prices could add up to $125 billion of new disposable income.1
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Trading Your Retirement Could Wipe Out Your Nest Egg
In times like this, when the market is volatile, many investors let their emotions and fear drive their investments. Even if you’re a seasoned and smart investor, trying to self-direct your retirement investments poses an extremely high risk – not because you aren’t competent, but because you are human. Instead of letting your emotions take control, it is essential to focus on the long-term outlook and the hard data.
If you have $500,000 or more to invest, get our free guide, “Why Trading Your Own Retirement Can Be Hazardous to Your Financial Health”—it offers some compelling reasons—backed by facts and research—why trading your retirement assets can be hazardous to your financial health.
This guide explores some of the key differences between trading and investing for retirement:
Download Your Copy of “Why Trading Your Own Retirement Can Be Hazardous to Your Financial Health.”2
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Markets Price In More Economic Fallout from Coronavirus – US and global stocks extended their volatile streak in a big way, with wild swings throughout the week rattling investor’s nerves. As news poured in of event cancellations, canceled flights, new travel restrictions, school closings, and bans on large gatherings, the stock market appeared to quickly price in the worst-case scenario of economic impact. The S&P 500 posted its worst single-day drop since 2008, 3 and talks of economic recession picked up with every day that passed. Investors everywhere are wondering, is the US economy heading for a recession? It is too early to know today, but it looks as though the economic impact is no longer a supply-related issue only, where supply chains are disrupted and production levels drop sharply. With consumers and businesses holding back from spending and investment, and consumers in general avoiding active engagement in the economy, we’re now seeing a palpable demand shock to the economy – which could make a short and shallow recession a self-fulfilling prophecy. That being said, from the moment the coronavirus outbreak and fear of the outbreak fades from the center of public discourse – which we are confident will happen sooner than later – these supply and demand shocks could see a sharp swing back to the positive. The market is likely to anticipate this change before the media and public consciousness does.
Will the Federal Reserve Come to the Rescue?
In response to the economic risks posed by the spread of the coronavirus, the Federal Reserve held an emergency meeting last week to cut rates by a half percentage point. The Fed basically never makes emergency cuts – the last time they did was during the 2008 global financial crisis. In a move that surprised many, equity markets sold off sharply following the Fed’s decision. We know why the Fed decided to cut rates: 1) lower rates mean lower borrowing costs to potentially shield the US economy against a reduction in global growth, and 2) lower rates give the market confidence the Fed is prepared to step in and take action. These are worthy causes on paper, but will the Fed’s actions actually make much of a difference? The short answer, in our view, is no. On the supply side, cutting interest rates by a half percentage point cannot restart factories, get people back to work, or remove travel restrictions. On the demand side, rate cuts won’t inspire people to go out to dinner and the movies, spend money in shopping malls, or travel for tourism.4 What’s needed now more than rate cuts is confidence that public health officials and governments are slowing the spread of the virus. Until that happens, the rate cuts aren’t likely to make much of a difference, in our view.
All the negative news surrounding the market probably has you wondering how you can protect your investments and your retirement against volatility. But if you are currently managing your own retirement assets, you could be jeopardizing your financial security. And it’s not because you don’t have investing skills—it’s because trading for short-term profits and investing for long-term goals are two very different things. And fear has a way of making even the most qualified investor make emotional knee-jerk reactions instead of focusing on long-term goals.
If you have $500,000 or more to invest, get our free guide, “Why Trading Your Own Retirement Can Be Hazardous to Your Financial Health”4—it offers some compelling reasons—backed by facts and research—why trading your retirement assets can be hazardous to your financial health.
This guide explores some of the key differences between trading and investing for retirement:
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