[2020] A little stock market sense

[pedro47]

The S&P 500 Stock Market index has gone back to 2021 levels - finally a little stock market sense !

In the words of my financial advisor it is only a paper loss.

 

[HitchHiker71]

I'm putting a bit of $$ in "I-Bonds" for intermediate needs and stability.
At my age, stability is becoming more important.

That said, most of my $$ is remains in various stock ETF's.
They may have taken a beating, but the bear market won't last forever.
.

This one may last longer than most anticipate when we consider the asset bubbles that exist due to cheap money from artificially low interest rates since 2008. Equity, debt, commodity and real estate markets are mostly in bubble territory still. The average bear market sees stock markets fall by 35-40% - we are at half that for most of the equity indices right now.

Markets can sometimes remain irrational longer than most investors can stay liquid.


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[Ralph Sir Edward]

When the Fed stops squeezing and starts easing, it's time to buy back in.

 

[Talent312]

As much as it pains me, a bit of retrenchment (or claw-back) seems only natural.
I've had three negative years in the last 15 years (2008, 2015 & 2018)...
$$-wise, this has been the worst, but percentage-wise, it's about average, for me.
.

 

[CO skier]

This one may last longer than most anticipate when we consider the asset bubbles that exist due to cheap money from artificially low interest rates since 2008. Equity, debt, commodity and real estate markets are mostly in bubble territory still. The average bear market sees stock markets fall by 35-40% - we are at half that for most of the equity indices right now.

That would be about right if the markets "revert to the mean" (Historic Trend Line). I think the Fed will not jump-in with trillions to keep it from happening this time, as it did in 2020. The Fed has a bloated balance sheet that needs to be unwound.

 

[TravelTime]

Fed fund rate at 3% has resulted in mortgage rates of 6%. So if Fed raises fed fund rate to 4%, which is likely, I guess that could mean mortgages rate go to 8%. This is bad news for folks used to 4% fixed rate mortgages and those who switched to 4% five year adjustable mortgages that will come due eventually.

———————

https://www.washingtonpost.com/business/2022/09/23/stock-markets-fed-rate-hike/

… “The Fed’s continued balancing act between restoring price stability in exchange for economic pain has roiled the markets as hopes for a soft landing are quickly fading,” said Nicole Tanenbaum, partner and chief investment strategist at Chequers Financial Management. “Monetary policy is a blunt instrument, and investors are rightly concerned that the Fed may go too far too quickly before it is able to accurately assess the effects of its policy on the economy.”…

… The full weight of the Fed’s actions since March — pushing a key interest rate up by 3 percentage points already, with more increases still to come — may not be felt until later this year or next. But financial markets are taking in the central bank’s promise and sending alarms back out — making clear that no matter how many times Fed officials say they’re going to do whatever they can to crush inflation, the idea still roils Wall Street.…

… Analysts say the drop is not only about the Fed’s moves so far, but also about further tightening ahead, and the growing likelihood that the Fed cannot get inflation down without causing a recession. …

… Major market indexes are down significantly for the year so far, though the long bull market that lasted until recently means they’re still up more than 30 percent over the last five years.…

… The Fed’s benchmark interest rate now sits between 3 percent and 3.25 percent, and officials expect it to cross 4 percent by the end of the year, well into what is considered restrictive.

That rate does not directly control rates for mortgages and other loans. But it influences how much banks and other financial institutions pay to borrow, which helps drive loan pricing more broadly. And crucially, the Fed’s own communications — be it remarks from Fed officials or policymakers’ economic projections — are key to shaping financial conditions, and getting the markets to start pricing in rates hikes that are still to come...

… But it’s likely to take some time to see the full effects of changing financial conditions on inflation…

 

[pedro47]

S & P 500 stocks have been good the past 20 years. I guess it is time for a correction.

 

[CO skier]

Dow suffers worst month since March 2020 | CNN Business

There is a saying on Wall Street, "Don't fight the Fed." When the Fed injected $7 trillions in 2020 it was "Buy, Buy, Buy and Buy the Dips". Now the Fed is unwinding some of that $7 trillion and aggressively raising interest rates. Does anyone need a flashing red light "Sell, Sell, Sell and Sell the Rallies?"

Anyone who is holding stocks at this point in time is "Fighting the Fed".

Timing the market is not that difficult.

 

[Brett]

Dow suffers worst month since March 2020 | CNN Business

There is a saying on Wall Street, "Don't fight the Fed." When the Fed injected $7 trillions in 2020 it was "Buy, Buy, Buy and Buy the Dips". Now the Fed is unwinding some of that $7 trillion and aggressively raising interest rates. Does anyone need a flashing red light "Sell, Sell, Sell and Sell the Rallies?"

Anyone who is holding stocks at this point in time is "Fighting the Fed".

Timing the market is not that difficult.

I think timing the market is difficult.
And holding a % of investments in diversified stock index funds is not "fighting the fed"

 

[DrQ]

Anyone who is holding stocks at this point in time is "Fighting the Fed".

Timing the market is not that difficult.

If you are holding on quality stocks generating dividends, selling now just turns paper losses into real losses.

 

[CO skier]

If you are holding on quality stocks generating dividends, selling now just turns paper losses into real losses.

Thanks to the Fed $7 trillion juicing of the ecomony in 2020, some of which found its way to juicing the stock market for almost 2 years, anyone who sells now locks in a gain plus dividends versus the bubble levels of 2020 when this thread started. It should be obvious the Fed is not riding to the rescue this time around.

So, what "losses" are you referring to?

 

[CO skier]

And holding a % of investments in diversified stock index funds is not "fighting the fed"

Clearly, you do not understand the meaning of the phrase. What "diversified stock index fund" is not down substantially from the beginning of the year, or over the last month (substantially), or over the last week?

 

[Brett]

Clearly, you do not understand the meaning of the phrase. What "diversified stock index fund" is not down substantially from the beginning of the year, or over the last month (substantially), or over the last week?

Clearly you are not a "buy and hold" investor! but hey, maybe you are the next warren buffett

Why timing the stock market is a bad idea
https://www.chase.com/personal/inve...cle/why-timing-the-stock-market-is-a-bad-idea

 

[Superchief]

I think there are much better ways to reduce inflation without these significant increases in interest rates that ruin everyone's finances. This administration can cut back on wasteful spending and open up the energy market, both of which are the primary drivers of this out of control inflation. The Feds actions will cause a major recession in addition increasing the federal deficit. Many restaurants and small businesses will go bankrupt because people can't afford to go out to eat. The Inflation Inflammation Act also eliminates accelerated depreciation deductions for corporations, so they won't be buying new equipment. It makes me wonder whether anyone in government understands basic economics.

 

[bluehende]

The Inflation Inflammation Act also eliminates depreciation deductions for corporations

Reference to this. It sounds highly unlikely that I would hear of the biggest change to business tax law ever on tug.

 

[Superchief]

Reference to this. It sounds highly unlikely that I would hear of the biggest change to business tax law ever on tug.

It's a shame that you no longer can learn about these types of things through traditional media.

 

[bluehende]

It's a shame that you no longer can learn about these types of things through traditional media.

Again....REFERENCE. It is hard for me to believe business would be quiet about this no matter how many attacks on media you throw out there.

I assume you mean the minimum tax. It far from outlaws depreciation. I will provide the actual congressional analysis...a reference. Even if you pay a minimum tax that tax carries forward as a credit and depreciation is not mentioned.

https://crsreports.congress.gov/product/pdf/R/R47202

A credit for additional minimum tax could be carried over to future years to offset regular tax when that tax is higher.

 

[Brett]

It's a shame that you no longer can learn about these types of things through traditional media.

Actually one can learn about taxes in the "traditional" media but misinforation is prevalent in the "non-traditional" media

(hint: accelerated depreciation is still allowed)

 

[Superchief]

IT is a very complex issue, but the net result is that corporations will be paying much higher taxes unless they are in one of the 'chosen' industries. Guess who really pays these additional taxes, consumers when they buy the products. Therefore more inflation.

The Inflation Reduction Act, Accelerated Depreciation, and the Balance Sheet Tax: An Analysis

trainersadda.com

 

[DrQ]

Credit Suisse Is in Deep Trouble - TheStreet

The Swiss banking giant is embroiled in a succession of financial scandals that now threaten its future.

www.thestreet.com

 

[MULTIZ321]

5 Relatively Safe And Cheap Dividend Stocks To Invest In October 2022

5 Relatively Safe & Cheap Dividend Stocks To Invest In - Oct. 2022

This article is part of our monthly series where we scan the entire universe of ~7,500 stocks that are listed on U.S. exchanges. See our 5 picks for Oct. 2022.

seekingalpha.com

Richard

 

[HitchHiker71]

If you are holding on quality stocks generating dividends, selling now just turns paper losses into real losses.

Tax loss harvesting may make good sense in these cases. Check with your investment advisor as always - but realizing the losses and then reinvesting later may make for good tax planning.

How Tax-Loss Harvesting Works for Average Investors

Tax-loss harvesting lowers current federal taxes by deliberately incurring capital losses to offset taxes owed on capital gains or personal income.

www.investopedia.com

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[HitchHiker71]

I think there are much better ways to reduce inflation without these significant increases in interest rates that ruin everyone's finances. This administration can cut back on wasteful spending and open up the energy market, both of which are the primary drivers of this out of control inflation. The Feds actions will cause a major recession in addition increasing the federal deficit. Many restaurants and small businesses will go bankrupt because people can't afford to go out to eat. The Inflation Inflammation Act also eliminates accelerated depreciation deductions for corporations, so they won't be buying new equipment. It makes me wonder whether anyone in government understands basic economics.

Continuing to hold interest rates artificially low is what got us into all of this in the first place. Are you actually recommending we continue down the same destructive path? That makes zero sense IMHO. Experiencing the short term pain of a recession is much better than the corrosive long term effects of stagflation. By far.

That said - I absolutely agree that the Inflation Reduction Act is a joke as it relates to taming inflation. Deficit overspending by further inflating the money supply is what has at least in part caused this inflation problem in the first place. Passing yet another huge spending bill doesn’t help - this is economics 101 conceptually yet we keep doing it repeatedly.


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[dago]

Continuing to hold interest rates artificially low is what got us into all of this in the first place.


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i agree. The Fed should have started increasing rates a lot sooner than they did. IMO.

 

[PigsDad]

That said - I absolutely agree that the Inflation Reduction Act is a joke as it relates to taming inflation. Deficit overspending by further inflating the money supply is what has at least in part caused this inflation problem in the first place. Passing yet another huge spending bill doesn’t help - this is economics 101 conceptually yet we keep doing it repeatedly.

If you are on the receiving end of the new/expanded programs in the Inflation Reduction Act, then it probably "reduces" inflation for you (but is paid for by other taxpayers).

Kurt