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My portfolio is getting crushed-what should I do?

So, the “correction” I was anticipating earlier this year has finally arrived. Is this still a Bull market, a Bear market or are we in a new period marked by volatility?  Do you buy, sell or hold tight?

The answer depends largely on where you think we are in the cycle, and your age, goals and tolerance to risk. In either case, I strongly urge anyone over age 70 to move at least half of your portfolio into segregated funds, as you can protect up to 100% of your assets in a downturn should you pass away before the markets correct. Your family will thank you.

All we’ve been hearing about recently are tariffs, Trump’s unpredictability, brexit, rising interest rates, weak china data, trade wars, an inverting of the yield curve signaling a possible recession, protectionism, and tremendous market volatility.

To help you decide if this is the end of the bull market and what actions you should take, I will show you some headlines and comments from CNBC.com over the past month, with two must see videos at the end.

“The bull market is over” said Former Fed chair Alan Greenspan. He went on to say “it was unlikely it would stabilize and then take another big leg higher. Markets could go up, but at the end of that run, run for cover.” Liz Moyer-Dec 18

“Major global markets are already in a bear market or are getting close.” J.R. Reed published an article on CNBC on Dec 18, in which it recognized that indexes in China, South Korea, Turkey, Italy, Germany and Mexico were in bear territory, with Spain, France and Russia all less than 5 % away.

the The article describes a bear market as “a 20 percent decline or more from a recent high.” It’s “when good news isn’t enough to hold off sellers and despite solid economic conditions, and pessimism tends to prevail.” Kate Rooney- Dec 24 2018

“I think the worst is to come next year” said Mark Jolley, global strategist at CBB International Securities to CNBC’s Squak Box. “I just don’t see too many positives out there.” Yee Nee Lee- Dec 24

Chart analyst Katie Stockton sees a weeks-long relief rally in stocks that could offer a better selling opportunity. “The rally would last for several weeks and would be up to 8% higher than where the markets closed on Friday.”  Beverly Lovelace Jr. –Dec 24 2018

Forget the Fed and trade war, the biggest threat to the stock market next year is a profit slowdown, says economist Ed Yardeni. He is projecting earnings growth of just 5% growth next year, which is down from 21% in 2018. “The latest correction seems to be discounting the possibility that earnings growth will be down or flat next year because we are not in the recession camp.” Yun Li-Dec 19 2018

A deeper correction may be needed before markets improve, says Jim Paulson. “I think we are going to have to kill off concerns about inflation, and that probably means a deeper correction and even weaker economic growth before this bull can continue.”
Tyler Clifford- Dec 20 2018

BofA’s latest charts declare bear market, suggest correction will last another six months. Despite this, the analyst does not believe the downturn will come at the expense of the secular bull market, suggesting this is simply a cyclical bear in a secular bull market. He is watching the 200 week moving average at around 2300 on the S&P 500 as a possible bottoming target from here. Stephanie Landsman-Dec 23 2018

While President Trump has been blaming the Federal Reserve for the market collapse (after they raised interest rates by .25% as they said they would months earlier), Treasury Secretary Steve Mnuchin says “the stock market’s plunge after the rate hike was completely overblown.” Tucker Higgins-Dec 20

In fact, the Fed even said they were considering only two rate increases next year, down from three, where UBS’s Art Cashin, believes the Fed might not hike in 2019 and there’s an outside chance they might have to cut rates.” Bob Pisani Dec 21 2018

“I‘m stunned by all of this talk of recession, said Mohamed El-Erian, the chief economic advisor for Allianz, on CNBC Squak Box. “For us to get into a recession, the rest of the world has to really slow down dramatically. It’s really hard to get a recession when the labor market is strong, wages are going up, and business investment and government spending is going up.”
Mathew J. Belvedere -Dec 21

“Wall Street stock forecasters see bull stretching to one more year,”despite warning of risks including trade disputes, slower earnings and a deceleration in U.S. GDP growth.” Thomas Frank- Dec 17, 2018

David Tepper is buying stocks after market’s worst week in a decade. The hedge fund manager says “It’s still a tough market and investors have to be careful about their exposure. However he believes the sell-off presented an opportunity to “nibble on some stocks”. Liz Moyer CNBC Dec 24 2018

Two videos to watch which describe what is going on in this market:

  1. The market is in a panic and a sharp rebound may be coming soon:
    https://www.cnbc.com/2018/12/24/market-panic-enters-late-stages-jim-paulsen-says.html?recirc=taboolainterna
  2. Jeff Gundlach argues the bull market is over, while five other analysts argue the bull case.
    https://www.cnbc.com/2018/12/19/gundlach-and-three-other-experts-weigh-in-bull-run-is-ending.html

Conclusion: Until we go into a recession, I am only prepared to call the recent market action –a nasty bear market correction, in which we are probably 2/3 of the way through it.

The sectors which typically do best in this environment are health, consumer and utilities.  However, given the damage done to small caps and emerging markets and the necessity of infrastructure, I think it is a good time for long-term investors to start adding to positions in these areas, while doing some re-balancing in case this correction turns into something more.

p.s. The DJIA rocketed a whopping 1000 points yesterday (after losing 653 points on Dec 24) and was down almost 600 points today, before closing over 260 points higher.

It looks like volatility will be with us for a while, so have some eggnog or the beverage of your choice, strap in and relax.  It’s looking like a cold and bumpy winter.

Happy Holidays

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