The stock market remains on a rollercoaster, headlined by dramatic selloffs followed by impressive comebacks. Through it all, the indexes remain fairly near their all-time highs. Indeed, a hallmark of this historic bull market has been its ability to keep coming back, with the occasional bad news being met by just short-lived dips.
Nevertheless, there are reasons for concern, the most notable of which is the festering trade war with China, which seems nowhere near resolution, as new tariffs are going into effect. True, tariffs can be rolled back, and new trade talks are likely next month, but the effects of bad feelings could linger, nonetheless. Also worrisome is the slowing in our economy, with recent surveys denoting a sharp drop in consumer sentiment and the first contraction in manufacturing activity in three years (with new orders being especially weak). Such trends, along with choppiness in housing and further increases in our already large trade deficit with China, suggest that it will not always be smooth sailing ahead for the economy.
There also is justification for optimism. True, the above issues are concerning, as they suggest—along with sinking bond yields—that we could be heading for a recession. However, the consumer is still spending aggressively; the Federal Reserve, which meets this month, seems wedded to a policy of ongoing interest rate cuts; and the third-quarter earnings outlook remains fairly bright. So, concerns that the long expansion may be nearing an end still seem somewhat premature. Thus,
The onset of autumn is likely to bring more of the same. In fact, as long as questions linger on trade, and stock market sentiment shifts accordingly, Wall Street will remain subject to fits of volatility, with short-term swings of some magnitude expected to recur. None of this is unusual during the extended stages of a bull market, but it can be unsettling until prices start to turn up again.
Conclusion: With the past likely to be prologue for a while longer on Wall Street, a good strategy would be to keep a healthy dose of quality stocks in one’s portfolio, with new positions being added during times of market stress.