Conflict and the Markets

A great deal of conflict is transpiring in the world at this time. The Middle East, Asia, Africa, and Eastern Europe are all in different types of conflict, and in addition, we are experiencing tense relations with Iran, Russia and China. Domestically, we are dealing with a major immigration issue, as thousands of children are streaming across our southern borders, in search of refuge. In the past, such conflict, turmoil and loss of life would have resulted in the stock market sinking and the bond market making a mighty surge, as investors sought the greatest safety possible. Yet while this is all taking place, the stock market has hit new record highs with only a slight migration to high quality bonds.

How is this possible? The only answer that I can come up with is that investors see the United States in an unprecedented growth phase. Corporate earnings are growing, unemployment is down, energy costs are moving down, real estate prices are rising, and the consumer is beginning to act in a positive manner. Inflation continues to appear to be under control. The only negative we’ve seen is the falling value of small company stocks that were likely overvalued earlier in the year.

Can this continue into the future? I must say that I am rather surprised that we haven’t seen a stock market correction by now. If anything, what we have been witnessing is the lowest volatility in the stock market in years. I cannot explain it.

There is an old Wall Street saying: “the trend is your friend.” In other words, enjoy the ride and be ready for when the trend veers off in a different direction. It’s been a very nice ride, so far!

Ed Mallon

Posted Wednesday, July 23, 2014 at 3:05PM