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How To Invest In An Increasingly ‘Fragile’ Stock Market

Welcome to a sweltering summer of fragile global stock markets.

“The market is fragile to headlines, and that’s what really makes me nervous,” said Liz Young, director of strategy at BNY Mellon, on Yahoo Finance’s The First Trade. “I don’t mind a fragile market as long as it’s based on fundamentals because we can model out and measure fundamentals. But when it’s fragile to news headlines and things we can’t control and things that are happening every minute of every single day that’s when investors really fall victim to some of their behavioral biases.”

Pick your poison as to why stocks are so fragile right now.

The U.S. trade war with China shows no sign of abating and in fact, the rhetoric between the two countries hints at it becoming worse. U.S. economic growth is poised to slow sharply — in large part due to the affects of the aforementioned trade war — as the year progresses compared to the first quarter, reasons Oxford Economics Chief U.S. Economist Greg Daco in an interview with Yahoo Finance. The economist doesn’t rule out a “garden variety” recession in 2020 (nowhere near as severe as the one in 2008/2009, but something investors will have to pay attention to).

Meanwhile, higher costs for workers and transportation — coupled with the impact of tariffs — suggest Corporate America’s profit margins peaked in 2018.

Indeed, all of these concerns have, to Young’s point, taken their collective toll on stocks this month.

Stocks Are Getting Hammered


The S&P 500 dipped below the psychologically important 2,800 level on Wednesday. Globally exposed companies such as Apple (AAPL) and Amazon (AMZN) have seen their stocks tank 11% and 6%, respectively, over the past month. And the small-cap Russell 2000 (thank you trade war), Philadelphia Semiconductor Index (also thank you trade war) and numerous bank stocks like Goldman Sachs (GS) have been savaged (thank you inverted yield curve).

So, what’s the course of action for investors being hit over the head with seemingly around the clock negative headlines? Give a financial advisor a call because one’s portfolio needs some sophisticated strategies in order to survive and thrive what’s shaping up as a summer of market fragility.

“First, you want to make sure you are participating in it. Cash and short-term bonds are effective in holding their value. But, they aren’t effective in lowering correlation in the overall portfolio,” explains Young. “So you have to make sure you are balancing beta with something that is actually going to do that like traditional duration alternatives. That way you can still take part in markets on the way up on the stock side, but that you have the right type of protection that will zig while the other part zags.”

In other words, diversify and don’t chase overly risky stocks (as measured by their higher than market average betas).

“You want to make sure you are balancing the near-term headwinds and not being overweight beta, with still being able to participate because you must be present to win,” Young says.

And for the record: Young advises against day trading headlines. Hey, trying to time the stock market has proven consistently to be dumb.

Hit up that advisor, folks.