Trend analysis overlaid by multiple uncertainties
Wall Street traders are enjoying the stock market’s trend-less turmoil. Everyone else, not so much. The ever-changing news reports whirl stock market outlooks about, thereby keeping investors unsure and concerned. Beneath the stock market volatility are multiple uncertainties.
U.S. stock market uncertainty
Beyond “normal” risks, conditions are unstable due to disruptive, human-caused actions. The widespread, abnormal shifts are undermining investors’ understanding and expectations. Thus, the stock market tosses about, producing confusion, worry and contradictory advice.
U.S. economy uncertainty
Among those willing to undertake an economic outlook, there is little agreement. Some say there are no signs of a recession, some say there are signs, and some say the recession is already here. Since the economy’s strength underlies the health and growth of businesses, this uncertainty puts all stock market outlooks on a shaky foundation.
U.S. alliances uncertainty
Over the decades, countries have sought alliances with others primarily for security, economic, and mutual support reasons. Importantly, these alliances respected each other’s history, governance, and culture. Additionally, these relationships developed provisions for citizens’ desires to take advantage of safe foreign travel, education, employment, volunteer, and retirement opportunities.
These stable alliances are being tested now by the new, non-negotiated tariffs and other government actions that weaken or overturn previous agreements and understandings. Because such adverse actions have not been taken in recent history, the end results are uncertain.
U.S. government uncertainties
There is much discussion about the actions and changes being decided and approved within the White House. Traditionally, the U.S. Congress formulates, discusses/debates, and decides issues having to do with the economy, commerce, country alliances, foreign trade, tariffs, agency creation/funding, overall spending allocation, and the military. The White House then approves or vetoes the actions.
Now, however, the White House has taken over those Congressional duties. Moreover, it has altered or reversed previous Congressional actions. Additionally, it now is significantly decreasing the human resources at many agencies and departments without agency and/or Congressional approval.
Add to the uncertainties accompanying these nontraditional actions the question as to whether they are proper. Some have been judged in court to be improper. Therefore, there are the additional uncertainties as to which decisions will remain, what will be their results, and how the employee shrinkage will affect government operations.
Presidential authority uncertainties
President Donald Trump has made proposals that are unique:
- Making Canada the 51st U.S. state
- Taking over Greenland
- Acquiring Gaza, deporting inhabitants and building a casino resort
Will any of these singular, significant actions be pursued? If so, what will be the consequences?
Uncertainties are worse than risks
With risks (e.g., whether the Federal Reserve will lower the interest rate), there is usually a range of possibilities based on known factors. However, uncertainties have widespread possible outcomes (e.g., whether the 10% general tariff level will remain in effect, at that level, and apply to all countries). Then there are the uncertainties as to the resulting effects of the tariffs, as well as other countries’ reactions. All these unknowns produce a wide range of possibilities.
The bottom line: Investors face uncertain and possibly unexpected results
So, what is an investor to do? There are three basic options:
- Stay the course – The logic here is that eventually changes will be incorporated so that the uncertainties shrink, and investors can regain confidence
- Increase allocation to cash – The reasoning here is that the uncertainties likely will produce buying opportunities, so having some cash on hand can provide both protection and opportunity
- Go to 100% cash – This proposition removes uncertainty from the investment portfolio, thereby producing a state of mind focused solely on deciding when to start buying