In recent days, the White House has made it crystal clear that it’s willing to endure significant economic turmoil and short-term pain in the stock market while it implements its economic agenda.
We’re seeing that pain right now…
The S&P 500 is down 10% since it hit a record high on February 19. The Nasdaq Composite has fared even worse. It’s down 14% since that peak and has entered correction territory (a market correction is defined as a decline of between 10% and 20% in an index).
Some market watchers are even speculating that a bear market may have begun on February 20…
Kevin Hassett, director of the National Economic Council and President Donald Trump’s top economic advisor said last Friday that the stock market and economic growth are not top priorities for the administration at the moment.
Other Priorities
Instead, Hassett named three other goals the administration is focused on…
- A dramatic reduction in the number of fentanyl deaths in the U.S.
- Creation of manufacturing jobs, especially in the auto industry
- Passing a successful tax bill
And Trump himself said he’s not watching the stock market, at least not in the short-term.
Of course, nobody knows what will happen. It’s possible we’ll soon get some clarity on the tariffs the Trump administration continues to implement and rescind on an almost daily basis.
But I wouldn’t count on it anytime soon.
And don’t expect Jerome Powell to come to the rescue with a “Powell Put,” – an interest rate cut that puts a floor under the market to prevent it from falling further. The Federal Reserve Chairman has made it pretty clear that he and his colleagues are just as uncertain about the impact of Trump’s policies as everyone else and will wait to see what happens before altering the benchmark interest rate.
So, until the economic turmoil subsides, what’s an investor to do?
- Consider other asset classes. You might not have noticed it, but international stocks are booming right now – specifically, stocks of developed countries other than the U.S. and Canada. The EAFE Index – Europe, Australasia, and the Far East – covers large and mid-cap stocks across 21 developed markets outside Canada and the U.S.
That index is up about 10% year to date, while the S&P 500 is down 5.5% so far this year. If you followed the Oxford Club’s Asset Allocation model and put equal weight into U.S. and international stocks (30% each), your international gains for the year would have more than offset your U.S. losses.
Alex recommended a great European growth play in the March issue of the Communiquéthat you might want to check out.
Finally, gold is particularly attractive right now. It’s up 33% over the past 52 weeks and 10% this year. And its price is expected to rise higher as foreign central banks continue to add gold reserves over the coming year.
In rocky markets like this one, when uncertainty and volatility become the norm, diversifying into other investments is the key to portfolio stability.
