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What Can Possibly Go Wrong Now?

Markets around the world seem to be taking bad news in its stride.

Admittedly, there have been moments when traders got a little jittery. But traders can get jittery over two flies landing on a window pane.

On balance, it looks as though nothing much can dampen investors’ enthusiasm to keep stock markets moving higher.

Even Donald Trump hitched a ride on the stock-market bandwagon. He tried to take credit for instilling investors’ renewed confidence in the US market that saw shares hoisted to all-time highs.

Whilst it might seem that nothing can possibly go wrong now, a lot could still derail the markets.

It might not take too much to knock shares off their pedestals.

Ambitious Trump

We seem to have forgotten, for instance, that many of Trump’s ambitious schemes have yet to be approved by US lawmakers. There are no guarantees that his tax cuts or his spending programme will be approved.

Even his Executive Orders can and have been challenged in the courts.

And can America really afford to increase defence spending and foot the bill for $1 trillion of new infrastructure, whilst cutting corporate taxes and income tax, all at the same time?

Trigger-happy

We should not overlook the fact that Brexit is far from a done deal, either. Article 50 has been triggered. But there is a lot of talking to be done.

What’s more, a UK General Election on 8 June has just added more uncertainty to an already uncertain outcome.

Elections, as we know, can be unpredictable. Pollster might say otherwise.

If Prime Minister, Theresa May, wins, then she could have a stronger mandate to negotiate better terms for a UK exit from Europe. If she loses, then all bets are off.

We have to bear in mind that a significant number of Brits still don’t want to leave Europe.

Potholes galore

Staying in Europe – which is something that Britain probably won’t be doing – fissures are appearing in a number of key European countries.

The European Union may have skirted around a pothole, when the Dutch rejected the hard-right, populist candidate. But important elections in France and Germany could, yet, upset the apple-cart.

What about the Fed? What indeed. There was a time when the slightest hint of a rate hike would have sent shares tumbling. But it doesn’t seem to have the same impact, anymore.

In fact, a failure to hike rates could, ironically, set off all sorts of alarm bells about a possible slowdown in America’s economic recovery.

For the moment, Janet Yellen has hinted that interest rates would only rise gradually. But “gradually” is a movable feast that could give the market chronic indigestion.

Oily bonds

It also seems to have escaped the market’s attention that the price of a barrel of oil is hovering around $50 a barrel. It might not take much to send it lower. The last time that happened, traders were predicting Armageddon. This time, however, they appear to be more measured.

What about bonds? We seem to have forgotten that investors piled into bonds as interest rates were falling. But with interest rates set to rise, a trickle of bond sellers could turn into a flood, which could disrupt the US$100 trillion bond market.

And then we have the man from North Korea. The highly erratic leader of the DPRK continues his threat to lob missiles at his southern neighbour. It won’t take much to disrupt harmony in Asia.

Rosy outlook

Global stocks have risen on the expectation that tomorrow is looking rosier. They are even spending tomorrow’s profits and tax cuts today. That’s fine as long as a company’s earnings continue to grow.

But as Warren Buffett pointed out: “The dumbest reason to buy a stock is because it is going up.

One of the most dangerous times for investors is when it looks as though nothing could possibly go wrong.

It is in times like these when we need to be doubly certain about the stocks that we own.

Our mission at Stock Advisor is to look for wonderful companies at fair prices. That margin of safety helps us sleep well at night, whatever might happen in global markets.

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A version of this article first appeared in Take Stock Singapore. Click here now for your FREE subscription to Take Stock – Singapore, The Motley Fool’s free investing newsletter.

Written by David Kuo, Take Stock - Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.