Correction, or Worse?

[Kerim]

I've always loved that we've (mostly) been able to avoid politics here. And probably best to continue that streak / practice. But we seem to be in such strange and unknown waters these days that I'm finding it hard to tune out the noise and stay the course. Seems like something important could get broken soon, and not sure how to protect against it. Or even what it is.

Anyone else feeling a bit more anxious about their investments these days?

[ken-do-nim]

Whenever JNJ increases in price nowadays, it means people are flocking to it for safety. It seems pretty clear that tariffs and counter-tariffs will drive massive inflation which is already hurting consumer confidence and we will enter a recession.

[Kerim]

The repeated on-again, off-again stuff with the tariff certainly isn't good for my nerves, or the market's!

[ken-do-nim]

I'm not sure if it's today, tomorrow, or next week, but I will be moving to a defensive bear market portfolio. Should have done this the moment Trump said, "Hey the tarrifs are back on again." last week.

[Kerim]

Woof -- not enjoying this correction. Stuff still overvalued, so not a time for bargain hunting, but nonetheless having to watch portfolio value sink fast. I know, I know, part of life with the market, but I don't have to enjoy the downturns -- especially as I get older!

[Dividend Watcher]

I agree. I just retired and was planning to use a lump sum to add an addition to the house but I think I'll just focus on the foundation at this time. Here's the proverbial Sequence of Returns Risk for me. Just playing it safe right now.

The frustrating part for me is as you said ...

Quote:Stuff still overvalued, so not a time for bargain hunting,

I still have some "dry powder" but nothing is slapping me in the face yet. PEP is interesting here. The last time it was yielding over 3.5% was 2008, I believe. Before that was the 90's. Too bad I have so much of it.

We still have a way to go before we get to 2022 levels and even more to get to the fish-in-the-barrel 2008/9 levels. (Those were the good ole' days.    )

Patience!

[ken-do-nim]

I believe where we are in this stage of the correction is January 2022. January 2022 hurt like hell, but things kept going down for another 9 months. The question here is how long is the downturn? Here are the storm clouds I see:

• tariffs!
  
• reciprocal tariffs!
  
• agriculture & construction worker drain due to deportations
  
• housing starts go way down due to worker drain and lumber/steel tariffs. Housing remains out of reach for most Americans
  
• international boycotts of US goods
  
• international move away from US currency
  
• less international travel to the US
  
• downgrading of US credit rating as deficit grows (Trump's first term had the 3rd largest deficit growth of any presidential term, and the other two had wars to fight)
  
• consumer confidence drop
  
• inflation rising
  
• unemployment rising, both due to the federal worker cuts and due to the slowing economy
  
• the Fed unable to cut rates to stave off unemployment due to the inflation. May even have to raise rates.
  
• Social Security is expected to start missing payments in 30-90 days (after none for 90 years)
  
• But the biggest, baddest of them all is the Republican charge to cutting or eliminating Affordable Care, Medicare, Medicaid, and Social Security. For me personally if Medicaid is cut then my son loses his home. If he comes back home, I probably lose my job to care for him. Similarly, it would be game over for many other middle age workers now thrust into caretaker roles for the elderly and disabled. Take them out of the workforce, and we are looking at Great Depression part II.
  
• Undetermined: what is the effect on the economy of getting rid of the Department of Education? Denying climate change? Lowered homeland security staffing? (Angering Hamas while lowering Homeland security is just inviting 9/11 part II). Trampling people's rights to protest?
  

Time to bottom for the 1929 stock market crash was 30 months.
Time to bottom for the 2008 great recession was 18 months.
Time to bottom for the 2022 market correction was 10 months.

I think we could quite possibly slide/stagnate all the way to the 2026 midterms. A blue wave could send the market back up.

[Kerim]

Can't say I'm much more optimistic than you. And that's far less than half the list. Government spending is such a big part of the economy, and that's getting slashed.

I sold a little in 2024, but way less than I intended to. Even now, convinced that this could be a rough one, I am hesitant to head to the sidelines. I'm not sure cash is going to fare much better in the short or long term. No safe havens right now. Just spreading it around as best I can and otherwise planning to just ride it out. Even bought some PHYS a few months ago.

Are you doing any repositioning?

[Dividend Watcher]

I myself have trimmed a few companies that I was getting frustrated with and would have dumped eventually anyway. I also put in some orders today, with the escalation in trade rhetoric or some indications of a weak economic outlook, for a trim to a couple companies that will have some retail issues. These are only small trims. I'm also turning off some dividend reinvestments to build up some cash but most of that was planned earlier due to retirement and cash needs in the near future.

Other than that, I'm willing to hold through this mess.

I'm about 12% cash in my accounts but only 3% cash in the wife's accounts. Thankfully, all my retirement calculations excluded any contributions from her accounts.

[ken-do-nim]

I'm 100% in cash now. The only funds I have invested in the stock market right now are my company stock options, the earliest of which expires in 2029, but the bulk of which expire in 2032, so I have plenty of time on those.

We're all very familiar with the 2021 runup and 2022 stock market correction due to raising rates. So where are we relatively? May 2021 was the first we heard of inflation, but the Fed said it was probably transitory, and the market rebounded. September/October were rough as I recall, but November and December 2021 the market irrationally surged before the huge drop of January 2022. Given yesterday's action, I think we are in the irrational November recovery from the Sep/Oct drop; i.e. we already know the writing's on the wall but people are still holding/buying. Soon we will be reading articles about the hardships caused by the tariffs, and the market will plummet precipitously.

So then comes the question of how long to bottom?
1929 crash - 30 months
2008 crash - 18 months
2022 crash - 10 months

My current plan is to get back into the market in 2026 if the Democrats look to be leading in the polls to take back Congress. But I will always get back in after 3 months of gains after the drop, because in my research that's the signal that a bottom was reached and the market is recovering. And it's hard to tell. Who knew in October 2022 we'd reached bottom? The Fed were still raising rates. It wasn't until the end of January 2023 that I realized we were in the recovery phase, when I looked at all my stocks and clicked the 3M button and saw growth across the board. But Jan 2023 was a monster month and ideally I would have noticed the bull run a bit earlier. If I had sold at the beginning of November 2021 when it became clear (I think) that inflation was real and waited until the start of Jan 2023 to reinvest I would have done great.

I sold everything back in Sep 2008 the day Lehman Brothers went bankrupt, and got back in March 2009. The bottom was in April, so I was pretty close to it. It's definitely an art form to figure out when to get back in.