There is plenty of doom and gloom concerning the stock market today. Clients might be thinking about getting out or keeping extra cash on the sidelines. No one can accurately predict the future, but let us pose some “what if” questions that make the case for committing some money to the stock market.
1. What if…inflation suddenly slowed? Inflation jumped. It was initially blamed on pent up demand post pandemic lockdown and supply chain bottlenecks. The Fed has been accused of waiting too long to act. We have seen declines in gas prices, although the official inflation figures usually omit energy because it’s volatile. What if the inflation numbers suddenly improved? Would the stock market react positively?
2. What if…earnings really matter after all? Big companies know the stock market reacts to earnings announcements. In years past, companies would lay off employees, squeeze suppliers for better prices and raise product pricing to keep earnings growing. What would the stock market do if earnings continued to grow?
3. What if…interest rates stopped going up? Suppose inflation slowed and the Fed stopped raising rates or only increased by smaller increments? Would the housing market benefit if many people were not priced out of the mortgage market? Would home sales pick up again?
4. What if…Mr. Putin didn’t show up for work one day? We were raised not to wish for bad things to happen to people. Let us assume he decided now is a good time to retire. He is said to have built a nice place for himself on the Black Sea coast. It is said to be on 180 acres. He has probably put some retirement money aside during his years in office. Would world tensions ease if the Russian government reconsidered its priorities?
5. What if…oil prices did not decline? Oil prices are below their highs. Gas at the pump has become cheaper. Oil prices are largely governed by supply and demand. If the Middle East producers pump less, prices stay high. Shale oil is said to be economical to produce at prices of $50+/barrel. It takes time and money to put new supplies online. Prices would need to stay high for the U.S. to start producing more and importing less. How would the Middle East producers feel about that?
6. What if…companies coped with worker shortages? We have seen help wanted ads in store windows for months. Businesses claim they cannot find people to hire. Suppose supermarkets put in more self-checkout stations? Suppose restaurants installed more touch screen ordering devices at their tables? Suppose they found ways to automate more tasks? Computers replacing people has been a movie theme since the 1950s. Industrial robots started appearing on auto assembly lines in the early 1960s. Would certain companies benefit from this shift?
7. What if…dividend paying stocks suddenly looked cheap? Total return stocks pay you while you wait. That’s the logic. Income stocks produce income, but total return stocks are expected to deliver some growth too. If the stock market went down and took them with it, yields would rise. Would it make sense to own several stocks that pay dividends and have growth potential?
No one can accurately predict the future, but one or more of these scenarios has some probability of coming true. Some might resonate with your client.
Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book Captivating the Wealthy Investor is available on Amazon.