Halls of Shrewd'm / US Policy❤
No. of Recommendations: 3
Here are a few thoughts from me.
Federal Reserve interest rates have been set at a level to dampen economic activity and bring inflation down to the target of 2%. The economy has continued to power forward in something of a Goldilocks state with inflation around 3%. Tariffs on Mexico, Canada and China will cause an increase in inflation, as consumers pay at least a good chunk of the 10-25% increased cost of goods from those countries. This will keep the Fed from lowering interest rates very much, if any, in the near future.
At the same time, the economy and employment will likely take a hit as Trump and Musk "move fast and break things", resulting in hundreds of thousands of unemployed former federal workers, with knock-on effects, and the flow of massive amounts of Federal money suddenly ceasing within numerous sectors of the economy like clean energy, pollution control, environmental remediation, foreign aide, and non-profits, not to mention weapons and associated military goods.
The business of war is not one I admire, but it's long been noted to be one that is profitable and its scale influences the US economy. What happens when the vast demand for weapons, ammo, and other gear from Ukraine is abruptly removed from that sector of the economy? It will be hard to quickly offset the loss of tens/hundreds of billions of dollars of Ukraine aide.
It seems to me like the ball could be rolling that turns into the next recession and bear market. Short term interest rates being fairly high gives market participants an easy place to turn if they get scared of further losses in the stock market. And what is currently a temporary correction could snowball downhill into a bear market fast. Seems like we're about due.
I'm going to be looking to put more capital in the stock market if so, small cap value.
No. of Recommendations: 2
I think clearly now is the time to diversify since there are a lot of unknowns out there. And the common thread would be international stock markets, gold/metals, TIPs and reduce exposure to the US market.
We likely are seeing more unemployed in the federal sector which will ripple through the economy and in some cities could also hit RE hard. I lived much of my life in the MD/VA/DC area where housing seldom dropped much due to how many government employees lived in the area and a married couple there could easily afford the high RE prices and support them even in bad economic times. I know back in 2008 when RE in many areas dropped 50% or more, housing back east dropped but by much less.
And couple the current issues with the fact the stock market was probably overpriced before 2025 started and sure you could see a sizable drop. Nothing currently going on politically is going to improve the economy, especially in the short run.
Diversify and be nimble. No country stays on top forever and I think the US standard of living has been dropping for a while and might accelerate further. Hopefully not long term.
No. of Recommendations: 2
No. of Recommendations: 5
BenSolar wrote,"And what is currently a temporary correction could snowball downhill into a bear market fast. Seems like we're about due."
Study the history of bear markets following the collapse of a bubble. These don't resolve quickly.
Wendy
No. of Recommendations: 3
Wendy wrote:
I wouldn't be putting fresh money into the stock market, which is in a bubble, just ahead of a recession...Study the history of bear markets following the collapse of a bubble. These don't resolve quickly.Right, I agree. My target for investing isn't the bubblecious S&P 500, rather the average/slightly below average valued small cap sector. We've been talking about the difference in relative valuations of the sectors over the past year or so in this thread:
https://www.shrewdm.com/MB?pid=441105106I don't aim to buy at the low, just to buy at a good value. I got myself burned during the Covid recession/bear waiting around for stocks to hit lower level, when instead they skyrocketed with me on the sidelines.
As I wrote in the post linked above, I'm a fan of small-cap value and while I don't have readily accessible charts to show it, I'm sure it benefits from the same relative valuation advantage as small cap in general, possibly more so.
When stock market volatility increases, small cap, and small cap value often have outsized moves compared to large cap. I.e. earlier today the S&P 500 was down 1.4% compared to Vanguard Small Cap Value ETF (VBR) down 2.2%.
So, we're at a spot where relative valuations greatly favor small cap, absolute valuations of small cap are a bit below the long term average, and volatility is picking up.
If this correction turns into a bear market, it will be an excellent time to buy small cap/small cap value, IMO.
Timing the purchase(s) is tricky. I don't have any detailed plan, I'm just going to start some machinations to make some funds ready to invest.
No. of Recommendations: 0
If this correction turns into a bear market, it will be an excellent time to buy small cap/small cap value, IMO.
I tend to agree. I own some VSCIX in an old 401k, but just a little and I add in dribs and drabs periodically. Since I was reminded about it, I just added a little while typing this message.
I also own some VBK and VBR (couldn't quite decide between small cap growth and small cap value, so bought both, growth has been doing better than value recently) and I have their distributions reinvested as they are also in a tax-deferred account.
No. of Recommendations: 4
Timing the purchase(s) is tricky. I don't have any detailed plan, I'm just going to start some machinations to make some funds ready to invest.
I have been doing that for about 6 months. As the laddered CDs pay out I’ve been putting some of the monies into good paying money markets. The payout is slightly less than rolling it into another CD, but it’s worth it to me to have some ready funds in case the market swoons (which I expect, to some degree at least.)
I’ve also consolidated a couple of accounts which had trifling amounts of cash sitting at the bottom, the result of dividends collected etc. (I rarely, if ever, choose “reinvest”) so the cash accumulates and earns practically nothing. If I sweep it into just one or two of the accounts I can then put that in a money market and wait… which is what I’m doing now.
[Sidebar: Meanwhile I am also looking for non-swoon candidates: one of them is public companies in the drone business. There are relatively few, and a couple of them are so big that it wouldn’t matter to their stock price (Amazon, Northrop, Boeing). But with the debut and advances we’ve seen in warfare in Ukraine and the use of cheap drones to deliver perfectly on target munitions without any risk to human pilots, I’d think that is an area of “commerce” that’s ripe for growth, market bubble or not. Of course I think the hype with “Amazon delivery by drone” is just that, it’s hard to see how that would scale, but it’s a nice companion story, even if I don’t believe it. The “commercial drone” business: farmers, surveyors, even law enforcement is interesting too. And of course there’s hobbyists, a growing number I think. If I get into it - since I know nothing about that business, I would probably play it as a gorilla game scenario: small bets across a few of them, consolidating as the market reveals itself, assuming it ever does.]
Anyway, always a new game to play, and it’s like the man says: step right up, put your money down. (Not yet, but I think it’s coming.)
No. of Recommendations: 7
The “commercial drone” business: farmers, surveyors, even law enforcement is interesting too.
Youngest started up a drone program where he works, for surveying bodies of water. Instead of physically walking the shoreline of the area they are inspecting/monitoring, they fly the drone. It's crazy how much man-hours he has saved that company. A great idea for investment.
IP
No. of Recommendations: 2
So, we're at a spot where relative valuations greatly favor small cap, absolute valuations of small cap are a bit below the long term average, and volatility is picking up.
If this correction turns into a bear market, it will be an excellent time to buy small cap/small cap value, IMO.
Timing the purchase(s) is tricky. I don't have any detailed plan, I'm just going to start some machinations to make some funds ready to invest.
I own a bit of Avantis US Small Cap Value ETF AVUV and intended to buy a lot more. Currently down 2% from a year ago.
Hmmm. I think I'm going to wait a bit longer. If there is a recession coming - sure feels like it - small caps will get hit, hard.
