Projecting out a successful retirement and trying to account for all the ghouls around the corner such as inflation and unforeseen family emergencies is hard enough as it is to get right. So, when the stock market turns against you and threatens to upend all those plans, it can feel like a malevolent entity that is out to get you. It reminds me of the 2007 movie “1408” when an evil force inside the hotel room at The Dolphin tortures a skeptical and emotionally beaten-down paranormal investigator played by John Cusack1. The dark entity attacks him, shows him horrible images and destroys the room around him over the course of one hour. Then it lets Cusack’s investigator think he’s gotten out, only to rebuild the hotel room he’s in, resetting the clock to 60 minutes, and begin playing, once again, “We’ve Only Just Begun …”2 by The Carpenters. It’s the perfect song for a perfectly scary movie.
But is “We’ve Only Just Begun” the perfect song for the stock market now? Uncertainty over oil prices resulting from the fighting in the Strait of Hormuz + worries about unemployment rates rising swiftly due to the increasing adoption of AI in the workplace + the collateral damage done to software company stocks whose margins may be pressured or even disappear altogether with the advent of AI agents = less of a song than the freight train noise made by a tornado as it passes through. This week has been eventful. “Monitoring the situation” has become a full-time gig for me. I’d be interested in the cell phone data reports about usage this past week to see if others are as transfixed as I’ve had to be.
The market dropped on Thursday, dropped some more on Friday, then completely dumped Tuesday morning and then mostly recovered by the closing bell. Wednesday it was up and some temporary damage has been contained and mitigated. But as I bring up the tape today (Thursday), the Dow is down 800 points and other indices are down as well. Credit risks are lingering. Oil price risks are lingering. Geopolitical risks are rising. Companies continue to do stupid things. Look no further than Carnival Cruise lines who are having too much fun on their Fun Ships to realize that forsaking the purchase of oil contracts to hedge against rising oil prices is dumb. And maybe their executives bought expensive drink packages themselves as they seem to have forgotten losing $130 million3 from higher fuel prices in 2023. Now their stock is down 24% from its high a month ago.
The oil prices are probably moving the market the most right now as those prices filter into nearly any consumer good that has to be shipped, which is, well, nearly all of them. As of this morning oil prices were up to $78 a barrel, not that that is historically an oil price that’s a problem, but it is certainly bucking the trend of declining oil prices as OPEC failed in recent years to throttle production enough to keep the market from being saturated. New barrels of Venezuelan oil coming online provide more downward pressure. The war, ehh …, major combat operation in Iran is having major effect. Despite assurances of the administration that tankers will have military escorts, tanker traffic through the Strait of Hormuz (very fashionable to say out loud as Hormuz rhymes with schmooze), is down 92%, which is obviously an enormous drop. The good news is that Fed Chairman Nominee Kevin Warsh has tipped that he’s interested in decreasing interest rates, so maybe any potential oil shock won’t automatically jack up interest rates4.
Software was left for dead and has been at least temporarily resurrected. It’s like the Stephen King short story “Autopsy Room Four.” It’s about a stockbroker who collapses on the 18th green of an apparent heart attack, pronounced dead and then hears the medical staff talking about him as they prepare to cut into him to perform an autopsy. It was a Peruvian boomslang snaking through the bushes in the rough that had bitten him as he searched for his wayward golf ball, rendered him paralyzed and seeming dead, just like the IGV, the iShares Software sector ETF looked before the last few days. You can see that on the chart here, and it’s actually – somehow – up on the month as of the writing of this. We’re still skeptical of the software space and will continue to monitor this situation as it develops. For now, software seems to have elevated beyond a “dead cat bounce.” Note the double-move higher off the February 23rd nadir below:
The themes that have caused the market to struggle this month are still present. Stock market downturns are made up of such. I don’t want to conjure images of bad years in the market with graphs of those downturns, nor at all dismiss the idea that this could be an excellent buy the dip moment. Investors have been handsomely rewarded for buying the dip over the last 15 years, so recent history would have many investors reflexively buying into the volatility. But we’re dealing with some huge variables that have not been present in all that time: an actual conflict in Iran that wiped out much of Iran’s leadership and which may potentially fans the flames of radicals who will die for their beliefs all over the world; the specter of AI and this ever-present sense of the unknown ramifications for its emergence and integration into the workplace. They are the kind of things that we won’t know the ramifications for potentially a very long time, years if not decades. It’s time and potential growth that you can’t get back if you are too cautious in waiting for the ultimate answer to emerge. The other side of the coin is averting potential losses. We’re embarking on this journey into this new, unpredictable future together:
Sharing horizons that are new to us
Watching the signs along the way
Talkin’ it over, just the two of us
Working together day to day, together.
The most important factor in all this is communication. However you feel about these situations, in the context of your goals and needs and time horizon, is 100% correct. There are no wrong answers on risk tolerance. So call us if you need to talk about your fears. The stock market can be a scary place. Please don’t step into this notoriously haunted place by yourself with just a cigarette, a pack of matches and a bottle of Cognac as John Cusack did into Room 1408.
And we’ll find a place where there’s room to grow
And yes, we’ve just begun …
If you listen to us, we’ll change your financial world.
Sincerely,
Scott Wright
Paranormal Manager
The Wealth Training Academy
(Marketing Disclaimer: Past performance is never a guarantee of future results. We offer a lot of services. Our planning, tax, and insurance strategies are designed to improve financial outcomes when implemented as recommended. We’re confident in these strategies, but results will vary based on individual circumstances. Investment results cannot be guaranteed. Unless otherwise indicated, no third party individuals mentioned in this article are clients of our firm, nor have they been compensated for appearing. This article is for educational purposes only – we do not recommend anyone buy or sell any security discussed here. Instead, we recommend readers call our office for personal advice about your circumstances! ~The Compliance Department.)
Sources:
2Carpenters – We’ve Only Just Begun Lyrics | Genius Lyrics
3Carnival’s fuel costs overshadow better annual forecast on cruise boom | Reuters
4Iran oil shock: Fed pick Kevin Warsh apt to cut interest rates anyway
