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When every retail store has back-to-school specials, that’s the cue for financial writers like me to start predicting what could cause the stock market to collapse.
The reopening of schools and concern about the stock market — while I don’t think they are actually related — share the same season. In fact, I think autumn is referred to as “fall” because that’s what the stock market usually does that time of year — although that could turn out to be different this year.
The biggest crashes in Wall Street history happened in October — 1907, 1929 and 1987. And there were some near misses in addition to those, particularly the one in October 1989 that caused President Reagan to put together a “working group” to study the market’s problems.
But the biggest one-day plunges in history happened in September 2001 and 2008. So the market’s troubles often begin in September and end a month later with big blow-offs.
But first, let me give you the good news — a couple of old Wall Street sayings that might make you feel better.
The first is that investors have long been told: “Don’t fight the Fed.” And the Federal Reserve has, if nothing else, been a friend to stock market investors over the last decade by keeping interest rates abnormally low and forcing a lot of people into stocks.
These added folks in the markets have to be there to get any kind of return.
Will the Fed’s magic continue to work? Dunno. But if you find the guy who can answer that question, send him my way, I’d like to shake his hand.
The other adage says that the stock market likes to climb a “wall of worry.” And, boy, is that wall tall these days!
With that in mind, let’s start with one of the biggest worries today — North Korea, which is ruled by a crazy guy who seems to think that no publicity is bad publicity even if it can literally blow up in his face.
The stock market has — incredibly — yawned at the threat of a nuclear attack. And that shows you that these are not normal times on Wall Street.
Will a North Korean missile ever be launched against another country or will Supreme Leader Kim Jong-un be content with continuing to flex his chubby biceps and send his missiles into the ocean?
And what will the US relationship be with real nuclear powers China and Russian after Kim is ultimately removed — one way or another.
These are some things the stock market will have to deal with in the months ahead. Will Wall Street remain catatonic to this threat? We will see.
Meanwhile, the weak US economy and the confusion at the Fed over interest rate hikes — threatening to raise interest rates one day and then changing its opinion the next — could spell trouble for stocks.
Then, of course, there is the high price of stocks themselves. Is there a stock market bubble or do corporate earnings and mergers — which remove plenty of publicly traded companies, further concentrating the available pool of investments — really justify the run-up in stock prices?
Political chaos and fighting between the two parties and possible terrorism attacks also pose hurdles that can affect marts.
Oh, if that were the only problem, this discussion could end right here. But it has to go on to my next column.