This is the second part in a three-part series adapted from the Ty J. Young Inc. webinar, “Investing in the Era of Trump.”
Yesterday, we discussed why we are seeing the stock market thrive in the era of President Donald Trump—despite that many investors thought the stock market would move the opposite direction with the election of our country’s 45th president. Still, reading the news lately may cause some to be skeptical as to how the stock market could possibly flourish with what is going on in the world around us. This begs the question, is this all happening in a bubble? Is stock market immunity to current events a reality?
In answering those questions, consider the following issues the United States is currently facing.
North Korea is a credible threat to the United States. Experts believe that North Korea is harboring nuclear weapons and intercontinental ballistic missiles that can be delivered to places like Japan, Guam and the U.S. mainland.
Donald Trump has been saying things that have been unprecedented when it comes to North Korea, like “Diplomacy is exhausted,” and “We will totally destroy North Korea.”
Do we need that kind of rhetoric? Yes. But if North Korea’s dictator has those weapons, he is probably going to use them.
A nuclear weapon being deployed in that region will shut down our trading partners, affecting a significant part of our economy. Our No. 1 trading partners is China, with Japan ranking No. 4 and South Korea ranking No. 6. Is this market immune to a potential catastrophic event brought about by North Korea?
In light of the fact that the stock market is thriving, that is evidence alone that the market does not consider North Korea a real threat. Our bombers are now on 24-hour alert, which has not happened since the end of the Cold War, yet the market is still moving higher and higher every day. This could very well be proof of stock market immunity to current events.
So far, the era of Trump has included several catastrophic hurricanes.
Hurricane Harvey resulted in 77 deaths and $90 billion in estimated damage. Hurricane Irma resulted in 134 deaths and $60 billion in estimated damage. Nine days later, Hurricane Maria resulted in at least 48 deaths and $30 billion in estimated damage.
Combined, that’s $180 billion in estimated damage from three devastating hurricanes in a row during the era of Trump. Where is that money coming from?
The answer is, from the taxpayers of the United States. Money should be allocated to help hurricane victims, but keep in mind that FEMA giving out money equals future taxation. And what’s happened to the stock market with that looming? It’s gone up—perhaps a sign of stock market immunity to current events.
San Bernardino in 2014. The Orlando night club shooting in 2016. The Las Vegas shooting on October 1 of this year. These are all shocking and upsetting events, but what happened on October 1? The stock market went up.
The stock market disregarded what happened in Las Vegas, as if it is in a bubble, or a vacuum. Nothing seems to affect it.
The national budget
Last month, we passed a $4 trillion budget. The issue is, we don’t have that much money. Tax revenue is currently yielding about $2.5 trillion anually, which almost guarantees that the government is going to spend $1.5 trillion more than what it brings in in the next fiscal year. That means that debt is likely going to exceed $21 trillion.
All that being said, the stock market still went up. It went up as the budget bill got signed. The fact is, the market doesn’t seem to think that spending an additional $1.5 trillion is a bad thing.
China is our largest trading partner, but while we deal with them as a trading partner, they treat us like the enemy. It’s getting better, but it continues to happen.
Russia is not our friend and will likely never be our friend. They violated nuclear arms agreements, invaded the Ukraine, seized Crimea and backed Syria against us.
With Iran—a state sponsor of terrorism all over the world— we made maybe one of the worst deals in the history of governments, essentially enabling them to have nuclear weapons.
As we deal with all of this, the stock market goes up.
So what does this mean?
What’s the bottom line to all of this? With all of those threats—North Korea, terrorism, hurricanes—what happens to the stock market? It goes up, proving that stock market immunity to current events is a reality. It’s like the stock market is in a vacuum—like the news from the rest of the world is different from the financial world.
Historically, current events and the economy have been intertwined, but right now, they seem like separate news items. But how can those two things be separate?
The answer is, they’re not separate. They actually have a great deal to do with each other.
There are two schools of thought here:
- The market is going to crash. Experts supporting the idea that the market is going to crash have been saying that after being in a bull market for the last eight years, we’re probably going to have a 40 percent crash.
- The market is probably going to continue to go up because the fundamentals are going up to meet the market. We have a pro-business president. Because of this, business leaders and economists believe the market is numb to outside forces.
With evidence supporting the idea that stock market immunity to current events is real, you may be wondering what you should do with your money when investing in the era of Trump. Tomorrow, we will discuss one course of action that we believe could be a smart one for current investors.
For more investing insight, continue to follow Ty J. Young Inc.’s Retirement You Earned blog! To learn how you can capture stock market gains while avoiding stock market losses, call us today at 877-912-1919.