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The Stock Market Correction Was Overdue Irrespective of the Coronavirus and Is Nothing to Fear

The Stock Market Correction Was Overdue Irrespective of the Coronavirus and Is Nothing to Fear

By John R Guardiano on February 28, 2020

Market corrections are regular and healthy occurrences, and the rebound to new highs may already be underway.

CNBC reports that U.S. equities markets lost more than $3.18 trillion this week as they suffered their worst weekly sell-off since the 2008 financial crisis. So, should you should divest yourself of all stocks and hide your money under the mattress until the panic subsides?

No, of course not. Stock market corrections occur with some regularity and are to be expected. They actually are healthy and beneficial because they help to check and rein in what Alan Greenspan famously called “irrational exuberance.”

Market corrections don’t mean the market is collapsing; they mean the market is consolidating and correcting equities valuations that got ahead of themselves and were artificially inflated by the bull run. This is a good thing because it sets the stage for further gains based on a more accurate assessment of market and corporate fundamentals.

Historical Context. “There have been 26 market corrections since World War II, with an average decline of 13.7% over an average of four months,” reports CNBC’s Thomas Franck. “Recoveries have taken four months on average,” and the upward trajectory of the market has remained intact.

There is “one big caveat”: if we fall into bear market territory, then “the losses stretch to 20 percent [and] there’s more pain ahead and a longer recovery time,” Franck notes.

But for a bear market to occur, we’d almost certainly have to suffer a recession, which is exceedingly unlikely, given the underlying strength of the U.S. economy and the U.S. consumer.

Right now, the equities markets are overreacting to fears of the coronavirus and how it might adversely affect Chinese economic growth and world economic growth more generally. CNBC’s Fred Imbert reports:

“What we’ve seen the last couple of days is pure liquidation,” said Keith Lerner, chief market strategist at Truist/SunTrust Advisory. “Investors are saying ‘get me out at any cost.’”

“The most important dynamic in the market is uncertainty,” Lerner added. “People are selling first and asking questions later.”

When traders and investors are selling first and asking questions later, that’s a surefire sign of an overreaction and an overshoot to the downside.

Moreover, just before this correction occurred, the major stock indexes—the SPY, QQQ, and DIA, for instance—had all hit 52-week highs. The market had been climbing higher and higher almost without interruption for some time. Thus we were due for a pullback. It was inevitable.

Inevitable Correction. The coronavirus, in fact, may have been the occasion or pretext for traders and investors to do that which they had been angling to do for weeks, but never did because of irrational exuberance and the fear of missing out on even greater highs. As Stephen Auth, CIO of Global Equities for Federated Hermes, told Fox Business:

This correction was overdue. We had a 17% run without a pullback. The last 16 times we’ve had something like that, we’ve had a 10% correction…

The coronavirus is a good excuse for one [a correction]. It is scary. We don’t know, really, how it’s going to play out. But at the end of the day, the global economy will bounce back from this. It’s at worse a short-term hit.

The “fact is,” writes Luke Burgess at Energy and Capital, “last week the Dow was trading 11% over it’s 200-day moving average. So, again, a market correction was inevitable with or without coronavirus.”

And a rebound off of our current lows is just as inevitable, and sooner than you might think.

In the three weeks before Christmas 2018, for instance, “so-called ‘U.S. equity style boxes’ made popular by Morningstar all fell by between 15-19 percent,” writes Rob Isbitts in Forbes. Lower-volatility stocks, meanwhile, suffered declines of 10-20 percent, he adds.

“The impact was so severe across the board, it wiped out all, nearly all, or more than all the gains of the prior year and a half in all nine [major] stock market segments…” Yet, “the stock market rebounded quickly after Christmas [2018], and that rally has stretched into the start of 2019,” Isbitts explains.

In fact, the rally extended throughout 2019 and into 2020 almost without interruption, as Annekan Tappe observed in a Dec.29, 2019, year-end analysis of the equities markets for CNN Business.

US stocks had a fantastic year in 2019, with all three major indexes climbing more than 20 percent. But that performance came at the price of volatility and uncertainty.

Last year ended on a sour note, with the worst December since the Great Recession leading to the first annual stock market losses in three years. This year was a rebound—and then some—but it wasn’t easy.

Trade and the Fed, the two big themes of 2019, pushed and pulled on equities. The Fed won out, and stocks soared. Investors got quite a bit of whiplash along the way.

The whiplash continues; but so, too, do the market’s gains. Stay invested and prepare for the next leg-up: because, as sure as the sun rises, it’s coming—in spite of the coronavirus.

Feature photo credit: Investor Junkie.

The Media and the Politicians Color and Distort the Coronavirus and Stock Market Plunge

The Media and the Politicians Color and Distort the Coronavirus and Stock Market Plunge

By John R Guardiano on February 27, 2020

Two big and dramatic developments, the coronavirus and stock market plunge, are dominating the news. To understand these events and their true significance, you need to understand the political and journalistic prisms through which these events are being reported and assessed.

First, the media have a professional interest in hyping the threat from the coronavirus and exaggerating the dangers from the stock market plunge. Doing so draws in readership and viewership.

Staid and boring news, after all. doesn’t sell; dramatic and consequential news does. This doesn’t mean the coronavirus and stock market plunge aren’t significant events; they obviously are. But it does mean that they need to be put into perspective and viewed in historical context.

Second, we live in hyper-polarized times, politically, and are in the midst of a fiercely contested presidential election, with one-third of the Senate and all of the House of Representatives up for reelection.

This means that political candidates running and on the ballot have every incentive to seize upon whatever bad news they can to try and score political points against their opponents.

Thus much of the alarmist commentary that we’re hearing about the coronavirus and stock market plunge is attributable to politicians trying to win votes and media outlets trying to draw in readers and viewers.

That many journalists and media outlets are politically partisan and unabashedly anti-Trump further compounds this problem.

So, consider the source of your news and take in information with a skeptical eye. Things probably aren’t as bad as they seem. As Ecclesiastes 1:9 puts it, there is nothing new under the sun and we’ve most likely been here before. Do your own fair-minded reporting and analysis.

We’ll have more to say about the coronavirus and the stock market plunge. For now, it’s important to understand the interests and incentives of those who are reporting on these developments (the media), as well as those who are helping to drive media coverage (the politicians): because as Agent Scully put it in the X-Files: “The truth is out there. But so are lies.”

Feature photo credit: Medium.

Ash Wednesday Ashes Are Important Symbols of Faith in Our Secular Culture

Ash Wednesday Ashes Are Important Symbols of Faith in Our Secular Culture

By John R Guardiano on February 26, 2020

If you believe, as I do, that organized religion, and Christianity and Judaism in particular, is a force for good in America, and that our success as a nation is in large part attributable to the prominent role religious faith historically has played in our public life, then it was good to see prominent news anchors this evening—Fox News’ Bret Baier and Martha MacCallum, for instance, as well as CNN’s Chris Cuomo—with ashes on their foreheads.

The ashes are there, of course, because today is Ash Wednesday, which is the beginning of Lent. And Lent is the beginning of the Easter season, which, for Christians, is the most important and solemn time of the year.

Lent is, as Chris Quilpa well puts it in the Suffolk News-Herald, when we Christians “observe and commemorate the passion, death and resurrection of Jesus Christ, the son of God, our Savior and Redeemer.” It is, as Father Paul Scalia explains, “a time of entering into combat: to ‘take up battle against spiritual evils.'”

But you don’t have to be a Christian to respect and appreciate the significant role Judeo-Christianity has played in American political life and in making the United States one of the freest and most prosperous countries in all of human history.

The great 19th Century social thinker, Alexis DeTocqueville, for instance, “claimed that the first political institution of American democracy was religion,” writes political scientist Michael Novak.

“Of all the dispositions and habits which lead to political prosperity, religion and morality are indispensable supports,” said George Washington in his farewell address.

Certainly, Judeo-Christianity in America has helped to foster certain habits and dispositions—industriousness, a work ethic, thrift, delayed gratification, a sense of reciprocal obligation to our fellow man, et al.—that lend themselves to political and material prosperity

Which is why the decline of religious affiliation in America, especially pronounced it seems in the past 20 years, is worrisome. All of us, as Americans, benefit from our nation’s religious and cultural inheritance. But what happens when that inheritance is exhausted and unreplenished?

Symbols Matter. The display of ashes on Ash Wednesday matter because symbols and symbolism matter. They spark interest and discussion. They incite curiosity and inquiry. They invite reflection and thought. They are a way to bear witness to the faith without being heavy-handed and doctrinaire.

Indeed, when children—and adults—see the ashes, some will ask: Why are they there? What do they mean? Why are they important to some people? And some of these children and adults will follow-up and learn more about Christianity and religious faith more generally.

Some might even become religious believers. But even if they remain agnostic, perhaps they at least will have a newfound respect for the contributions that people of faith can and do make to our commonweal.

Perhaps they will at least appreciate the role of religion in American public life. And, given our history, and given the challenges that confront us, that would not be a bad thing.

Feature photo credit: www.SevenDays.nl.

Trump’s Careful and Deliberative Actions in Afghanistan Contradict His Reckless Rhetoric

Trump’s Careful and Deliberative Actions in Afghanistan Contradict His Reckless Rhetoric

By John R Guardiano on February 25, 2020

We noted yesterday that President Trump is eager to withdraw U.S. troops from Afghanistan. Yet, he’s been president for three years and hasn’t done so. Why? Clifford May, President and Founder of the Foundation for the Defense of Democracies explains why in today’s Washington Times:

I suspect his advisers have painted a picture of what could happen were he to cut and run:

A historic Taliban victory and U.S. defeat; helicopters evacuating diplomats from the U.S. embassy; pro-American Afghans having their heads chopped off with videos going viral; America’s enemies around the world redoubling their efforts to hasten what would be seen as America’s imminent decline and fall.

Not the results Mr. Trump wants to produce—least of all in an election year.

Trump himself made this same point, essentially, during a July 1, 2019, interview with Fox News’ Tucker Carlson.

Trump told Carlson that he would “like to just get out” of Afghanistan; but “the problem is that it [Afghanistan] just seems to be a lab for terrorists… I call it the Harvard of terrorists..”

Trump noted that the Sept. 11, 2001, terrorists who attacked the World Trade Center in New York City were trained in Afghanistan; and that the country’s history as a terrorist training ground and terrorist base of operations makes withdrawing U.S. troops there problematic.

“I’ll give you a tough one, if you were in my position,” he told Carlson:

A great central-casting general walks up into your office. I say we’re getting out. “Yes, Sir, we’ll get out. Yes, Sir.”

I say, ‘What do you think of that?” “Sir, I’d rather attack them over there than attack them in our land.” In other word, them come here.

That’s always a very tough decision, you know, with what happened at the World Trade Center, etcetera, etcetera.

When they [U.S. military leaders] say that, you know, no matter how you feel…

When you’re standing there and you have some really talented military people saying “I’d rather attack them over there than have them hit us over here and fight them on our land”— it’s something you always have to think about.

Now, I would leave and will leave—we will be leaving—very strong intelligence, far more than you would normally think, because it’s very important. And we can do it that way, too. But we have reduced the forces very substantially in Afghanistan.

First off, kudos to Tucker Carlson for asking an important and straightforward question about Afghanistan and giving the president the time and space that he needed to answer that question fully and completely.

I am not a fan of Carlson. His snide anti-interventionist views do not comport with my own perspective, but credit where credit’s due.

Carlson, obviously, has earned Trump’s trust; and, as a result, Trump shares with him his thinking. This is something that Trump rarely does (at last in a serious and thoughtful way), and the result here is great journalism and a genuine public service.

Reassuring. Moreover, it is reassuring to know that Trump sometimes listens, seriously and with due respect and consideration, to his military advisers, and doesn’t always act out impulsively as he often seems wont to do.

It also is reassuring to hear Trump say that, so long as he is president, the United States will retain a robust intelligence apparatus in Afghanistan.

This almost certainly means that some number of troops will be kept there indefinitely to collect and analyze intelligence and ensure that Afghanistan never again becomes a terrorist base of operations from which to attack the United States.

The fear with Trump, though, is that what he says one day he may not mean the next day. He can and does change his mind impulsively. Policy decision-making, consequently, can be inconsistent and erratic.

Syria. Look at what happened in Syria, for instance. Trump abruptly announced last fall that he was withdrawing U.S. troops. This set off an unnecessary military and humanitarian disaster.

The president then announced soon thereafter that he would keep some U.S. troops in Syria, ostensibly to “protect the oil,” but the strategic damage already had been done: U.S.- and allied-controlled territory had been ceded to Russian- and Iranian-backed regime forces; the Islamic State had been given a new lease on life; and chaos reigned—and still does.

However, at least with respect to Afghanistan, Trump seems to be proceeding carefully, cautiously and deliberatively, with greater situational awareness and understanding of the longer-term strategic ramifications of his actions and what these actions might mean for the safety and security of the American people.

Trump’s caution may be surprising in light of his more reckless rhetoric about wanting to leave Afghanistan. Yet it is nonetheless reassuring, and it makes Trump a more successful president. More importantly, the American people are better served—and better protected—as a result.

Feature photo: DoD/DVIDS via KNOP News.

‘Endless War’ Is an Inaccurate Talking Point that Imperils Our Safety and National Security

‘Endless War’ Is an Inaccurate Talking Point that Imperils Our Safety and National Security

By John R Guardiano on February 24, 2020

Isolationists and anti-interventionists on both the left and the right have scored a lot of political points by decrying so-called endless war. It’s a great polemical talking point. Who, after all, is for “endless war”?

The talking point resonates because the United States has been in Afghanistan for 19 years and in Iraq for almost as long. But the term “endless war” is misleading, and it obscures more than it clarifies. And, in so doing, it distorts the policy options and choices that lie before us.

The choice that we face as a nation is not between peace or “endless war.” The choice that we face is between: a) a proliferation of dangerous threats; or b) a steady and consistent military and diplomatic presence abroad that keeps those threats at bay.

No one, after all, is talking about launching another 2003-style Iraq War, another 2007-style Iraq surge, or another 2001-style “shock and awe” campaign in Afghanistan or anywhere else for that matter. Large-scale occupying forces are neither needed nor desired now.

That’s because we’ve learned a lot in the past two decades of ongoing military engagement. We’ve learned that a large and massive military footprint isn’t always ideal and in fact, can sometimes be counterproductive.

But we’ve also learned that small numbers of highly trained U.S. military personnel and advisers can have an extraordinarily beneficial and outsized impact.

They can seriously stiffen the spines of our friends and allies; dramatically strengthen and enhance our diplomatic and negotiating leverage; and, in general, keep a lid on things, so to speak, by containing threats that otherwise would imperil our national security and safety worldwide.

Iraq and Syria. We saw this, for instance, in Iraq and Syria, where small numbers of U.S. special forces, aerial intelligence assets, and American air power were instrumental in uprooting the Islamic State and destroying its so-called caliphate.

That’s why President Trump’s decision last fall to abruptly withdraw U.S. troops from Syria was so tragically misguided, counterproductive and dangerous: It undermined our diplomatic leverage there and gave our enemies an opening to attack our friends and allies and undermine our interests.

Trump has since redeployed some of those troops to other parts of Syria; but his oft-expressed desire to leave altogether has weakened our position and embolden our enemies.

Trump should have learned from Obama’s foolish decision to withdraw all U.S. troops from Iraq. That decision led to the Islamic State, which, in turn, forced Obama to send U.S. troops back into Iraq.

Afghanistan. Yet, here are we are again, only this time in Afghanistan. A small contingent of U.S. forces there (roughly 12,000 troops), playing a key support role, have been critical in containing a witches’ brew of the Taliban, ISIS, al-Qaeda, and assorted other Jihadists. Yet, all Trump can do is talk about withdrawing U.S. troops and leaving Afghanistan.

“Time to come home,” he said Sunday. “They want to stop. You know, they’ve been fighting a long time. They’re tough people. We’re tough people. But after 19 years, that’s a long time.”

Yes, it is a long time. You know what also hasn’t happened in a long time? An attack on the United States that was planned and executed from a terrorist base in Afghanistan. Let’s keep it that way.

But the only way we’ll continue to protect the American homeland is not by “coming home,” but rather by keeping our foot on the enemy’s throat, so to speak, through a steady and consistent forward presence overseas.

A myopic and misplaced obsession with “endless war” obscures this reality. It’s long past time that we stopped—or ended, if you will—using the term altogether. As a policy option, it is inaccurate, and it doesn’t help or clarify the U.S. foreign policy debate.