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Oh Behave!

Updated: Mar 15, 2022

If you are like me and only spend time watching cable news to get your fix of random yelling and banter, the last couple of months have been outrageous fun. You might as well have just spent your time watching Austin Powers.

Depending where you fall on the political spectrum, either Donald Trump or <insert democratic senator here> could have been comfortably played by Dr. Evil. You’d think there was some wild plot to take over the world using sharks with “lasers” on their heads.

I digress. I have some good news for you, though. The world is not going to melt down after the upcoming midterm elections. Also, pretty much any outcome will bare the same results as far as the market is concerned.

What a great segue! The US market has been very resilient this year. This is especially true when we take into account the dramatic political environment we are in, coupled with the unchecked geopolitical mess that is the rest of the world.

We have seen very solid earnings over the last two quarters, and by all accounts, the major indicators have been strong as well. With manufacturing numbers, employment data, and wage data all coming in as well as could possibly be expected, I think the million Yen question is, “Where do we go from here?”

In terms of the United States, volatility is back and should be expected hence forth. This lead up to the election will undoubtedly start separating long-term investors from traders. Although I mentioned that all outcomes will likely not derail our economy, that certainly doesn’t mean that we won’t see a repeat of the corrections we already saw this year.

Frankly speaking, it would be healthy for our indices to experience a bit of retracement. In turn, the market could regain its energy to reach new highs.

This is of course assuming a democrat sweep doesn’t result in impeachment hearings. I don’t pretend to be a specialist in constitutional law; however, I don’t think you can impeach a sitting president simply because you don’t like his attitude. I guess we will see.

The rest of the world is an absolute hotbed for drama. I expect that we will see more of the same over the next 3 months. To be specific, many of the larger emerging markets will be dealing with substantial fiscal and monetary challenges.

Brazil is approaching a fiscal crisis, if left to metastasize, will start to resemble what has happened in Argentina (google it). China will continue to slow as tariffs cause growth problems and their burgeoning middle class will have to deal with increasing inflation.

Their 40+ year mortgages will start to price people out of home ownership as interest rates are forced higher to combat their inflation challenges, and people will not even be allowed to go on dates (families will not let their daughters date men who don’t own a home). This could perpetuate their demographic crisis even further. It’s a vicious cycle.

Europe continues to slow on the margin. Although they are not in a recession, the European Central Bank seems to be too quick with its calls to tighten policy. I’m not sure what decisions can be made to stimulate the economy at this point, but they seem to be fresh out of ideas. To that end, I think a soft landing for Brexit would be immensely helpful to the entire region and the European Union should stop trying to dominate Britain’s interests.

To tie this all together, I want to point out that both EM and Developed International are attractive on a valuation basis, relative to the US. That does not mean that they will outperform moving forward; rather, it simply means that they are cheaper than the US, as the US markets are expensive. This is why asset allocation is so important. Any of the asset classes can outperform at any time.

Occasionally investors can get ahead of these moves when major issues or opportunities are obvious. This is not one of those times.

Final Thought: Whether you like to live dangerously or just cruise along in bond ladders, you need to make sure you are comfortable with the amount of risk in your portfolio. If you don’t really know what that means, NOW is the time to address that question.



Any opinions are those of the author and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

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