extended its losing streak to six sessions on Thursday, after stocks endured their biggest declines since October earlier in the week.
So, is this it? Are we finally witnessing the dying of the bull and the breakdown of the “Trump trade?”
To those prone to fits of jitters, it’s starting to feel that way.
“Markets are waking up to the reality of the Trump hangover, which is going to mean a renewed focus on all the complacencies we’ve let build up in recent months,” writes Mint Partners strategist Bill Blain in his “Morning Porridge” note. “No surprise the mood has gone more than a little bit risk off.”
What’s an investor to do? Blain offered up two simple but important (and, really, often overlooked) rules to keep in mind as nerves begin to fray.
1) “It’s better to miss the last 5% of a rally than catch the first 20% of a market crash.” This is the investing version of “it’s better to be safe than sorry.” Of course, timing the market is a bit of a fool’s errand so while this rule, in theory, is spot on, trying to execute it properly can be a bruising endeavor.
2) “Markets always overreact.” This is the mantra that’s been so successfully executed by dip-buyers during the course of this bull market. In other words, the silver lining in any correction is the froth it takes out of the market and the buying opportunities it delivers. Just keep some powder dry.
Looking ahead, the key to this market surviving any sizable dips, Blain says, lies in the corridors of power. “It strikes me a renewed rally in stocks also needs to be underlaid by deliverables from Trump,” he said. “Keep a close eye on Washington to see what we actually get approved and done in coming weeks.”
Of course, it’s not all about Trump.
Blain also went into a breathless list of things the market has been ignoring during its record-breaking stretch, including, but not limited to: “Expectations and sentiment wibbles, overbought stocks, the long term consequences of QE, the rise of protectionism, dollar wobbles, credit bubbles, and rising inflation vs. bond markets. Overlay that with the political issues: Europe (in all its multihued wonder), the U.K. and Brexit, China and Russia.”
Read: Watch these key levels as ‘Trump trade’ wobbles.