In order to understand the biggest risks to the current market, you must first know the definition of risk. Risk is the possibility that something bad or unpleasant will happen. There is risk to everything we do in life: health risks, financial risks, and personal life risks are a part of living.
When it comes to investing there are many risks to consider as well. One may argue rising interest rates, sluggish consumer sentiment, and policy changes in Washington are all risks to the current market. As an investor, what risk are you feeling at this moment? I’d like to invite you to share your feelings in the comments, but I’ve compiled my own list of risks I feel investors are facing right now. Let’s get started:
How can tax reform be a risk? Tax reform can be a risk because this is the number one thing Trump must pass to please Wall Street. More so than anything else, investors want a tax reform package. We run the risk that it may take longer than expected to deliver this campaign promise. We also may see the House or the Senate pick apart his proposal and deliver a completely different plan. We can’t pass tax reform without healthcare, so there is also the dilemma of timing. If President Trump and Congress can’t pass this by midterm election, we run the risk of a bill not passing through the entire Presidency.
We started to see some signs of economic slowing in China. This is the risk of economic slowdown of the second largest economy in the world. It hits domestically and internationally.
This may not seem important at first glance. When you look deeper, the picture becomes clearer. Remember the Carter Era? When gas prices skyrocketed, and CD’s were appealing? The 19% CD return matched the 19% economic inflation. So, what happens if the Fed loses control of their $4.5 trillion balance sheet? They will expose taxpayers to significant losses. More importantly, if the Fed can’t figure this out and inflation runs rampant, then we have a major risk to the market. When inflation runs rampant you can experience the following: housing becomes unaffordable, wages become stagnant, costs of business increase, and consumers become frustrated.
The political risk to the market is far greater than any of the previously mentioned risks. While markets chug along, this administration can exercise any number of rhetoric tactics which absolutely sways the market. Markets question his logic when these events happen. I won’t blame the entire risk on Trump, but he needs to relax and get things done. The political noise is drowning the market optimism we started off with. The frustration with getting legislation passed has causes investor hesitation. As an investor, you must watch carefully and invest wisely. Be aware of what’s going on in your world in order to make an informed decision.
Jon Sanchez is a registered representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker-dealer and investment advisor. Member FINRA/SIPC. OSJ Branch: 12671 High Bluff Drive Suite 200 San Diego, CA 92130. Sanchez Wealth Management, LLC and IFG are not affiliated entities. CA Insurance Lic. #0772626.