A theory for the current reactions in the market is that good news is being read as bad news. We’ve had a solid employment number and unemployment has remained steady just above four percent. The reason the good news could be read as bad is since the markets are healthy, it could warrant quicker interest rate increases. Also, inflation is something that needs to be pushed up just a little bit, but with higher wages it could push inflation higher than desired.
Equities are another factor that could be putting pressure on investors to take profits or reallocated. Valuations continue to look bullish but many fear we’ve reached the point where the valuations may be too rich. A correction in the market would give investors time to move funds and reevaluate positions. Overpriced equities have their day when the market realizes they are expensive and push their prices lower.
Lastly is the geopolitical climate we are currently in. With the Olympics starting in South Korea, North Korea has maintained face but will be putting on a military parade demonstrating their force. Entering the Olympics as a joint country are signs pointing in the right direction, however, President Trump is another factor in the equation. Continuing to poke the bear so to speak, the President requested for a military parade of the United States forces. This could be seen as a tactic to provoke the unstable nation of North Korea.
All of these factors must be taken into consideration when looking at the recent moves in the market. As many of you reading this are likely long term investors, this market pullback should be nothing more than a buying opportunity. Lower your averages and maybe build on some equity positions. Due diligence is still necessary and careful consideration is a must as certain sectors struggle to create gains.
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Try AI Portfolio ArchitectNathan Young is a Senior Member of Macroaxis Editorial Board - US Equity Analysis. With years of experience in the financial sector, Nathan brings a diverse base of knowledge. Specifically, he has in-depth understanding of application of technical and fundamental analysis across different equity instruments. Utilizing SEC filings and technical indicators, Nathan provides a reputable analysis of companies trading in the United States.
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