What Did Friday’s Market & Political Actions Mean for Investments? - Weekly Blog # 687

 

Mike Lipper’s Monday Morning Musings

What Did Friday’s Market & Political Actions Mean for Investments?

Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018 –

(One of the challenges of living in the present is evaluating what has just happened, related to both history and expected futures. The following blog briefly examines four alternative sets of actions related to Friday’s events.)

Friday’s Actions

• Compared to a relatively low volume period for last two months, the New York Stock Exchange volume shot up 7.6 million shares from Thursday’s 3.9 million. Somewhat higher volume was generated on the NASDAQ, 7.8 vs 4.3 million shares. Interestingly, the Barron’s Confidence Index, which uses bond yields, shot up meaningfully in favor of high-quality bonds vs. intermediate bonds. For those who believe bonds often move before stocks, an increase in interest for high quality bonds is negative for future stock performance.
• The impetus for sharply rising stock prices in the morning was the announcement of a bill on infrastructure extensively negotiated by 21 Senators. The Senators were joined on the White House driveway by President Biden, who agreed without reservation to the proposed bill.
• Within two hours there was an announcement (from the 3rd term Obama staff) that the President would only sign the infrastructure bill after reconciliation actions coincident with the passing of his social programs. 
• This brought an immediate reaction by a number of Republican Senators who were part of the 21 member negotiations group. There were additional rumblings from a few Democratic Senators. Not surprising, price gains of Friday morning shrank.
• After the market close the White House issued the following statement from The President, “My comments also created the impression that I was issuing a veto threat on the very plan I had agreed to, which was certainly not my intent.”

What Should Investors Ponder?

1. Who is running The Executive Branch? Is it the President? Or is it the third-term Obama staff with their second-term FDR model?
2. Is redistribution of political contributions inevitable?
3. Pundits and their followers pay too much attention to political news.
4. Short-term market fluctuations do not determine long-term wealth opportunities.

Each Investment Portfolio Should be Managed to Fulfill it’s Needs

With that thought in mind the following tactical considerations should be considered.

1. We live in a global world. Increasingly, many of the goods and services believed to be vital are influenced by both attempts to restructure the domestic economy and actions taking place beyond our borders . Historically, people of wealth have diversified by investing outside the purview of their home governments. For the most part Americans have been a bit late in this effort. Our first conscious international exposure was often through buying shares in US-traded multi-national companies. In many ways this is a “half-pregnant” move. We are a believer that all investors should have some exposure to markets priced in currencies other than the US dollar. The needs of politicians are different than those of investors. Thus, the actions of selected foreign governments may be more favorable to investors than the those in the US and some of its states. This may be a particularly wise time to add individual foreign stocks and mutual funds investing internationally.
2. For shorter-term portfolios, considering the political uncertainty we are experiencing it may be wise to adapt trading technics, distinct from buy and hold investing approaches.
3. While the financial headlines are very short-term oriented, this may be the time to invest using fundamental terms. Dollar cost averaging could make a lot of sense.
4. For those able to meet liquidity needs with a portion of their portfolio, investing in selected private investments could make sense during a period likely to see increased investment regulation.

Please share your views on what has been expressed.

Did you miss my blog last week? Click here to read.

https://mikelipper.blogspot.com/2021/06/mike-lippers-monday-morning-musings-50.html

https://mikelipper.blogspot.com/2021/06/to-benefit-long-term-investors-invert.html

https://mikelipper.blogspot.com/2021/06/history-good-lessons-not-great.html

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