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Where are Equity Markets Headed? A Roundup from the Pundits

where are equity markets headed

Evergreen market positivists, take a seat. It seems equity market instability is taking over financial headlines again.

With the tit-for-tat trade war taking shape between the U.S. and a good portion of the rest of the industrialized world, analysts are once again reaching for—if not yet raising—their red flags.

MarketWatch recently featured this eyebrow-raising headline: "The Dow and S&P 500 are 10 trading days away from their longest corrections since 1984."

And in a story about some of the worst layoffs in 2018, TheStreet.com declared: "Let the layoffs continue. It's been a rough ride for some companies so far in 2018. The tariffs have spooked many industrial companies, as well as automakers. The market is flip flopping all over the place."

Barron’s unique take on this hot topic centered around legendary market technician Ralph Acampora, who is a pioneer in the field of chart-based trading.

Barron’s said Acampora "is growing increasingly concerned about recent moves in the stock market, notably in the Dow Jones Industrial Average." They added that "the primary utility of reading charts is a 'risk management' function, and what he's observing currently suggests that the bullish dynamic in equities may be unraveling."

Godfather of Chart Analysis: Market Seeing "Uglier Action"

In the week of June 18-22, Acampora, also know as the "godfather of chart analysis," had been more optimistic in his outlook. The markets "deserve the benefits of the doubt," he told MarketWatch in an interview then.

Performance grades by the small-cap Russell 2000 Index and the Nasdaq, until earlier in the June 25-29 week, had indicated there may be lingering market resilience, according to Acampora. But come next week, the godfather's tune had slightly changed.

As Barron's reports: "He believes the current dynamic in the market is making a strong case for investors to adopt a cautious stance moving forward and thinks that investors should be acutely focused on selecting the right investments."

In a direct quote attribution, Acampora said: "I sell when major support levels are broken…take a look at Caterpillar as an example…The Dow Industrial broke a near-term support yesterday—this is getting uglier action.”

Global Implications

When Donald Trump's top economic adviser stated that the President was "not retreating" in his approach to trade with China, the world took note.

According to TheStreet.com, with “the U.S. Treasury yield curve showing persistent signs of a slowdown, copper prices falling to a three-month low and oil rising to the highest in nearly four years, investors appear increasingly concerned that the global equity market rally may have run its course.”

Also weighing in on the topic was the European Central Bank.

In its monthly economic bulletin, the ECB reported: "The near-term prospects of greater trade protectionism have increased, which could have a significant impact on global activity and trade. Other downside risks relate to the possibility of a further tightening of global financial conditions, disruptions associated with China's reform process and geopolitical uncertainties associated, in particular, with Brexit-related risks."

What Are the Economic Indicators Telling Us?

MarketWatch reports that growth in the U.S. economy in the first quarter was trimmed to 2% from 2.2%.

Largely reflecting lower spending on healthcare, and "a somewhat smaller buildup in inventories, it could be another reason for investors to feel cautious," MarketWatch reported.

"Market participants have grown increasingly concerned that the economy could be in the late stage of the economic cycle, and this year has seen a sharp drop in the number of fund managers who expect the economy to be stronger in a year’s time."

The Fed’s Impact

Monetary policy affects economic conditions. And, according to a recent report in Investor’s Business Daily, “The Fed is tightening policy on two tracks, both hiking rates and gradually reversing its quantitative easing asset purchases made to aid the recovery after the financial crisis.”

Harm Bandholz, chief U.S. economist at UniCredit Bank, has written, "Once the impact of the fiscal stimulus fades, we expect economic growth in the U.S. to slow perceptibly. Accordingly, we anticipate that after the four rate hikes in 2018, the Fed will only raise its target rate one more time in 2019, before the growth slowdown puts an end to the central bank's policy normalization efforts."

Investor’s Business Daily indicates that if that assessment is correct, "then the Fed's hawkish plan being priced into markets is holding short-term rates too high, unnecessarily dampening the growth outlook."

What Does This Mean for Asset Protection?

"Unraveling." "Flip flopping." "Longest correction since 1984." Not the most comforting phrases to people who have built up wealth by working hard, investing well, and shoring up their savings.

There are as many predictions on if and when the markets might veer into serious correction territory as there are analysts qualified to make predictions. So, what is someone who is nearing or planning for retirement supposed to think or—better yet—do?

The first order of business -- among many in retirement planning -- can be preserving what you already have. Ask yourself - how many more market corrections can you feasibly come back from at this stage in your career and life? One? None? Another question you can ask is, "Are there ways to minimize my market risk?"

These questions and how we answer them will be different for everyone. And so will the strategies that each person uses to ultimately get to the finish line. But as well-respected economist Robert Ibbotson has noted -- and who is quoted in this article on growing annuity sales -- retirement is a time for more "de-risking."

Sequence-of-returns risk is a real threat for early-year retirees and working-age adults. So, we should consider strategies of how we will manage that risk, especially as we enter the golden years.

Making the Most of Your Risk Management Strategies

According to an article on USNews.com, retirees should take action before they face a market decline they can’t recover from.

Staff writer and published author Emily Brandon writes: "A steep drop in the stock market can be particularly devastating to retirees, who have few options to replace their depleted life savings." One opportunity is to find strategies that ensure your income needs continue to be met, regardless of market conditions.

Knowing where you stand in the face of market uncertainty is step one. A financial professional can help you evaluate your retirement assets and determine if there are options available to help you protect against market risk. They can also assist you with creating strategies against the many other financial risks retirees face as they enter retirement.

If you are ready for personal guidance, financial professionals at SafeMoney.com can help you. Use our "Find a Financial Professional" section to connect with someone directly. Should you need a personal referral, call us at 877.476.9723.

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