Crediting the Federal Reserve’s recent pause in policy-tightening efforts earlier this year, BlackRock CEO Larry Fink is predicting stocks will “melt up,” meaning they will rise sharply and unexpectedly in response to a large volume of investors experiencing FOMO all at once. Fink noted that many investors are holding “record amounts of cash” at the present time, creating a situation where they may feel pressure to get into the action that leads them to stop short of evaluating market fundamentals. Fink’s prediction is in stark contrast to analysts who say stocks cannot continue rising much longer.
Whether the market melts up or down, the volatility could hurt investors who do not take the time to do their due diligence before sinking money into the markets. “The data, when you bake it all together, is starting to show the positioning in U.S. equity futures is…shooting straight back up,” observed RBC Capital Markets head of U.S. equity strategy, Lori Calvasina. She added, “S&P 500 only deserves to have modest expansion” under current earnings growth conditions and said, “You could potentially be setting up for a peak in the market midyear and a retracement later in the year. My guess is it will happen sooner rather than later.”
The Election Will Affect Everything
Although many analysts warn the markets are due for dangerous volatility and possibly downward trends, it probably cannot all be blamed on the Fed. With the 2020 presidential election looming and already dominating most news cycles as democrat candidates vie with each other, the traditional effects of a presidential election on the markets could be magnified both this and next year. The good news for investors? Only three years of the last 21 election years have had a negative return.
The bad news for democrats? Nobel prize-winning economist Robert Schiller predicts a win for President Trump could be the key to prolonging that positive movement. “It’s very clear that Trump is a pro-business candidate,” Schiller said. He added, “It also seems likely that when Jerome Powell’s first term as Fed chairman expires, he’ll bring someone in that he controls more, and someone who can stimulate the economy without worrying.” To get that, voters will have to reelect the president. Powell’s term is up in 2022.
Schiller concluded he believes reelecting the president could boost stock prices and delay a downturn or recession. However, lest you think he was “plugging” the current president: Schiller also suggested Trump would install “one of his cronies” to replace Powell, indicating some degree of skepticism of the process.
Tell us what you think:
- Is reelection the key to avoiding a recession?
- Will the stock market fall if a democrat or independent wins the 2020 election?
- Are you buying stocks during the upcoming election year?
Thank you for reading the Bryan Ellis Investing Letter!
Your comments and questions are welcomed below.