Here’s Why You Need To Hedge Your Stock Investments

Stock market records have a way of enthralling everyone. However, the stock market is not currently reflecting the economy or the corporate backdrop.

For example, one may hear that the job market is strong. Yet job growth and job openings are both fading.

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One may be told that the consumer is spending. On the other hand, year-over-year retail sales (2.88%) are well below last year (4.58%).

In a similar vein, The Bloomberg Consumer Comfort Index fell to a nine-month low of 58. The measure even posted its steepest three-week slide since 2008.

Meanwhile, manufacturing remains mired in an outright slump. The most recent data on industrial production came in at a three and a half year low.

There’s a straightforward reason why the Federal Reserve cut its overnight lending rate three consecutive times. It did so because the economy is shaky.

Would Fed committee members be looking to provide monetary stimulus if prospects were wonderful? Keep in mind, the Fed is projecting fourth-quarter economic growth at just 0.4%.

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Corporations are hardly bucking the economic trend. Earnings have been negative for three consecutive quarters. It is likely to be negative for all of 2019.

Equally disturbing? CEO confidence has slipped to levels that preceded the prior four recessions.

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Why, then, is the stock market breaking higher? With six straight weeks of upward movement? Massive inflows of central bank liquidity.

Just one year ago, stocks were free-falling. It was happening because the Fed had planned to hike rates throughout 2019 and had intended to reduce the size of its balance sheet (a.k.a. “quantitative tightening” or “QT”) into 2020.

Instead, overnight lending rates were slashed in 2019. And when that did not satisfy financial market participants, the Fed began pumping hundreds of billions back into the system (a.k.a. “quantitative easing” or “QE”). Stocks have been rocking ever since!

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ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser ...

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