Jerome Powell's Fed policy is creating stock market clutter. Some asset strategies look like Marie Kondo's 'KonMari' method for tidying.
The stock market took a nosedive Friday, its fourth straight loss for the week. The Dow took a 250-point intra-day plunge. It closed the day 170 points lower. The broader S&P 500 Index and NASDAQ Composite wobbled throughout the week as well.
Wall Street is reckoning with overbought stocks, liquidity-pumped gains, and lingering recession threats. But you can sum up most of the financial market’s worst problems today with one word: Clutter. Who needs Jerome Powell? Marie Kondo can fix this.
Should stocks take a deeper plunge, you can check off four out of four boxes that preceded the worst stock market crash in history. Meanwhile recession risks mount.
And with quarterly earnings season set to continue over the next week, markets suddenly don’t seem so sure the $1 trillion NASDAQ rally since October makes any sense.
Marie Kondo’s world famous organizing method for combating clutter, “KonMari,” is essentially what some strategists are using to protect their portfolio.
Her system has done wonders for people living in messy, cluttered houses. It involves going through one’s belongings by category, one category at a time, and purging anything that doesn’t “spark joy.” If that sounds like a terrible way to pick stocks, bear with me.
In an interview Tuesday, global strategist David Rosenberg said the Federal Reserve’s “financial engineering” has cluttered investors’ books with indiscriminate buying:
Last year, was like, just throw a dart. Right now, it’s indiscriminate buying. Investing isn’t supposed to be like that. Investing isn’t supposed to be easy.
It’s true. In fact some wise guys at The Wall Street Journal literally did pick stocks by throwing darts at newspaper stock lists, and beat a lot of hedge funds that way.
But a cluttered portfolio with a random assortment of stocks might not do so well when the monetary environment shifts. Allianz Chief Economist Mohamed El-Erian said Friday that this “wonderful world of liquidity” won’t last forever.
There is an end at some stage.
Stock market bears can prepare by going KonMari on their portfolios, and picking securities that spark joy. That could be Index ETFs that spark joy for retirees that want to diversify.
It could be growth stocks that spark joy for investors looking for big returns from companies they’ve done their homework on. Or it could be value stocks for those seeking steady cash flow from a blue chip that’s having a rough time. Billionaire hedge fund manager Seth Klarman says it will be value investing’s moment again soon.
Disclaimer: The views expressed in this op-ed are solely those of the author and do not represent those of, nor should they be attributed to, CCN.com. The opinions in this article do not represent investment or trading advice from CCN.com.
This article was edited by Sam Bourgi.