Market Analysis

One Investing Lesson From the Media's Correction Contradictions

What investors can glean from the media’s internal contradictions on this correction’s alleged causes.

US stocks officially entered correction territory Thursday, after a late-day selloff drove the S&P 500 down 3.8% on the day.[i] In a mere 9 trading days, the index is down -10.1%.[ii] This is classic correction plunge-from-a-high market movement and, in our view, a time for your brain to set emotion aside and employ cold, logical thinking. Always remember: If you need equity-like returns for some or all of your assets, you need to be in equities the vast majority of the time. Absent a great reason to sell, owning stocks is probably the wisest choice you can make. And, right now, in our view, the things media and talking heads want you to believe are logical sell signals seem like nonsense. Common fears today are almost the inverse of what media and pundits claimed was missing from this bull market not three months ago.

The dominant narrative, as our Elisabeth Dellinger discussed recently, argues inflation is to blame. Wage gains exceeded expectations in January’s report, which some believe will trigger a wage-price spiral. That, to believers, implies much higher than anticipated interest rates ahead—which, media argues, are sure to knock stocks.

Please forgive us if we find this somewhat ironic. Last November, media was jam-packed with arguments that falling interest rates were the problem. Given short-term rate hikes and falling long-term yields, the yield curve was flattening! One bond market bigwig was quoted as claiming this was a recession “red flag.” While we agreed with the focus on the yield curve then, as we wrote, we thought they were overdoing it. Now we’re supposed to fear rising interest rates, even though these reverse that flattening. We know logical consistency is a lot to ask, but this seems ridiculous to us. Either way, it seems to us media and those extrapolating a slight rise in rates much further are likely once again overdoing it.

Relatedly, in recent months, media argued the Fed was taking huge risks by hiking interest rates while inflation was below their 2% target. Wouldn’t that trigger deflation? Wasn’t it premature? The real risk, many have argued for much of this bull market, is too-low inflation. But now we are told to fear higher inflation, even when there are no inflation data actually supporting the rise.

In the last two weeks, we are told that low-inflation narrative fundamentally changed, on the back of a 2.9% y/y rise in hourly wages.[iii] Never mind this figure was actually 2.89%, only 0.06 percentage point higher than the 2.83% recorded in September. Never mind, also, that so many commentators have griped throughout this bull market that slow-growing wages were holding the economy back. That is also just one data point, and one data point, in economic analysis, is insufficient evidence to prove almost any point. That is especially true when you consider the weak link between wages and inflation. Other than this dubious evidence, the only thing pointing to higher interest rates ahead is an uptick in … interest rates. Folks, past moves don’t predict. See those flattening yield curve concerns with questions.

Our point is only partially that you shouldn’t let the media have it both ways. It is also, and more importantly, that in a correction, folks latch onto any story, no matter how crazy, to seek an explanation for the downturn. It is hard for many to accept that the fact is corrections can and do happen for any—and often no—good reason.

But that shouldn’t apply to your portfolio strategy. If you have a portfolio strategy that properly accounts for your goals and needs, then you have a really good reason to own stocks. That means you should have an equally strong reason to avoid them. We just don’t see one out there today.



[i] Source: FactSet, as of 2/8/2018. S&P 500 price return on 2/8/2018.

[ii] Ibid. S&P 500 total return, 1/26/2018 – 2/8/2018.

[iii] Source: US Bureau of Labor Statistics, as of 2/8/2018. Average hourly wage growth, y/y, all private employees, September 2017 – January 2018.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.