We know the script by now…
When bad economic data hits the wires, the US stock market wobbles.
Then the Fed says it’s on hand to support the economy… and the markets recover as buyers rush back in.
You know how it works.
You’ve been following the story in Monkey Darts for the past couple of years.
We’ve seen how the markets have been manipulated, partly by Trump, partly by the Federal Reserve, to keep the longest bull run in history going.
Eventually, the bad news will be so bad that investors will lose faith… and the Fed won’t be able to prop up the markets.
But for now, the trick works.
Consumers are concerned
Sure enough, last week saw dismal manufacturing data – the worst monthly reading for more than a decade – showing a sharp contraction.
It’s a sign that manufacturing companies are pulling in their horns.
No surprises. They’ve seen how concerned consumers have been lately.
This from the University of Michigan:
“The Consumer Sentiment Index posted its largest monthly decline in August 2019 (-8.6 points) since December 2012 (-9.8 points), according to the University of Michigan Surveys of Consumers.
“The recent decline is due to negative references to tariffs, which were spontaneously mentioned by one-in-three consumers, he said. … Trump’s tariff policies have been subject to repeated reversals amid threats of higher future tariffs.
“Such tactics may have some merit in negotiations with China but act to increase uncertainty and diminish consumer spending at home, Curtin said. Unlike the repeated tariff reversals, negative trends in consumer sentiment cannot be easily reversed.”
That said, the September reading of the confidence index did in fact show a mild improvement.
And according to Donald Trump, the first day of the latest round of China trade talks yesterday went “very well”.
Hmmm. We’ve heard that before…
Let’s see where it goes before we rush out and load up on already expensive stocks.
Clearly the Fed is concerned, too.
Slashing rates and buying bonds
Business Insider has the story:
“Federal Reserve officials have grown increasingly concerned that ongoing trade tensions with China could begin to weigh on some of the brightest spots in the US economy: hiring and consumer spending. Other concerns for policymakers included slower growth abroad and below-target inflation.”
And this direct quote from the Fed’s minutes from its 18th September policy meeting, when it cut its base lending rate by 25 basis points:
“Several participants mentioned that uncertainties in the business outlook and sustained weak investment could eventually lead to slower hiring, which, in turn, could damp the growth of income and consumption.”
That’s two rate cuts this year so far – when at the tail-end of last year the plan was to raise rates…
The Fed’s U-Turn on interest rates has happened because it is terrified of what’s coming… and is doing all it can to stimulate the economy and fight the looming threat of recession… and depression.
In fact, according to the Financial Times, there’s another rate cut coming later this month:
“Mr Powell also appeared to confirm market expectations of a 25 basis-point cut in US interest rates at the Federal Open Market Committee’s October 29-30 meeting to add further insurance against uncertainty over “trade, Brexit and other issues”.
In fact, the Fed is so worried, it’s not just slashing lending rates…
The FT says it “will soon resume purchases of short-term US Treasury bonds to expand its balance sheet in hopes of preventing a repeat of the recent disruption in overnight “repo” markets, chairman Jay Powell said on Tuesday.”
Phew… that’s alright then!
Beware October’s past
Well, investors are piling back in as I write…
Part-Fed-feelgood-factor, part-Trump-trade-talk-tweets, I guess.
Will it last? It depends on whether anything concrete comes of the trade talks.
Let’s not forget, October has a bad history.
Black Monday, on 19th October, 1987 springs to mind. Investopedia records that saw “the Dow plummet 22.6% in a single day, is arguably the worst single day.”
The 1929 crash happened in October, too.
And even more recently, there was a 10% correction in October last year – which started the big year-end sell-off.
Howard Silverblatt told CNBC:
“October is a much more volatile month than any of the others as far as quick declines go.”
And according to Alex Barrow at the Macro Ops website:
“The next two weeks are some of the most volatile weeks of the year on a seasonal basis. Over the last 20-years, the S&P has tended to sell-off into the end of the month (26th is the average bottom).”
Why it’s important to spread your risk
This not to say that you shouldn’t be investing in equities, by the way. Not at all.
As we’ve found in previous research, over the long-term, equities have consistently beaten all other asset classes.
That means it makes sense to have some equity exposure in the portfolio mix – alongside your precious metals, bonds and other assets.
How much depends on things like your age, attitude to risk, length to retirement, for example.
If you lots of time on your side, consider investing in stocks that are well placed to ride big trends and themes that could play out over years. Have a look at some of the ideas Robert White’s been sharing in Monkey Darts.
Also bear in mind that as well as diversifying in terms of asset classes, it’s worth considering diversifying within asset classes.
So, if you hold fixed income investments like bonds, have a mixture of maturity dates, yields and even currencies.
That way, you’ll receive pay-outs at different times and be able to spread your currency risk, too.
It’s the same for shares. Aim for a mix of sectors.
Building your crypto portfolio
And if you’re building a portfolio of crypto assets, diversification makes sense, too.
Bitcoin and Ethereum are the ones that get all the press and probably form the basis of most crypto portfolios.
But there are many other cryptos or ‘Alt Coins’.
Some are actual cryptocurrencies like Bitcoin. Some are platform cryptos like Ethereum.
But there are also cryptos such as utility tokens and stable coins.
I won’t go into what they all are.
The point is, there are potential opportunities and risks in all these cryptos. Just as there are opportunities and risks in all bonds or all equities.
That’s why it makes sense to hold a diversified portfolio – to spread your risk and give you the potential for big gains in the next leg of the crypto bull market.
If you’re following Michael Mac’s excellent analysis over at the Crypto Traders’ Academy, you’ll know he’s still bullish on Bitcoin – and cryptos as an asset class.
In his latest update, Michael notes that at the current $8,500 level, Bitcoin is up 175% from where it bottomed in December last year.
But it’s still some 38% below the swing high it made at $13,800 at the end of June. And it needs to rise 132% to equal the all time high of $19,783 from December 2017.
That’s nothing in the grand scheme of things.
As Michael told Crypto Traders’ Academy members recently:
“Look there are a lot of variables… but all the signs are that the bull is back and the bottom is in. I’m confident we will at least challenge new highs for Bitcoin above $20,000 and we’ll likely see $100k in the coming years.”
Given that the price is currently trading at $8,400, that’s some significant upside potential.
And that’s just Bitcoin. Some of the smaller cryptos could deliver even bigger gains if they take off.
Get Michael’s advice on the best cryptos
Michael’s been investing in the crypto markets for years.
He has a deep understanding of the blockchain technology cryptos are built on.
And he’s a good man to have on your side if you’re thinking of investing in this type of asset.
Right now, he’s guiding Crypto Traders’ Academy members on where he believes the best places to invest are.
To get this guidance for yourself, without any obligation, check out this risk-free trial membership.
Meanwhile, let’s see if the Trump/Fed manipulation can keep this stock market rally going…
Or if October’s going to be true to form.