Thoughts {08.29.17}

So I thought I would have some time this week to put together a longer piece regarding the state of the markets.  Events have conspired to make that unlikely for now but I wanted to share in brief some of what I'm thinking and seeing.

First off, stocks are going to open down today by a minimum of at least half a percent.  Yesterday the North Korean's fired a missile over Japan.  That event has already notched up the tensions in a region that doesn't need any more provocative acts.  {For my analysis of the Korean situation see here.} Second, we are just beginning get a better picture of the potential economic damage that hurricane Harvey is causing in Texas.  The short answer there is while the event looks to be more localized than what transpired after hurricane Katrina, the damage is still going to be extensive.  The good news from an economic perspective is that we aren't hearing about extensive damage to the region's oil and gas industries, but the flooding is biblical as the rain continues unabated.  Some areas in Texas have received nearly 40 inches of rain since the storm made landfall over the weekend.    Either one of these events would have given stocks a reason to pause.  Both are a headwind to much to ignore in the short run. 

Probability would seem to indicate at a minimum here that stocks have a greater potential to remain range bound for some time or perhaps give back some of this summer's gains as we not only digest these events or at least wait and see what the response is to each.  Being the last week of the summer doesn't help and September is statistically one of the weakest months of the year for markets to advance.

I am not attempting to make a longer term call on stocks and for all I know we could see a turn around and markets could head higher.  That sort of thing would truly confound most of us that watch the markets for a living!  It would also say something about the staying power of the current bull market if it were to occur.  However, I am saying that from my perch, the short-term headwinds give markets enough of a reason to at a minimum suggest a pause is in order.  If I had to make a guess on the length of this period, then I would say we could mark time or even decline a bit between now and sometime in September.  That's assuming the news doesn't get worse and remember this is only a guess.

Markets need a pause now to regroup.  Hopefully, if it occurs at all, we will be able to find value in ETFs we find attractive for our clients.