The stock market is setting new highs and no one knows when there will be a correction, although we do know the markets tend to run in cycles. Recently Richard Thaler who won a Nobel Prize in Economics was promoting his new fund and asked about the markets. He says he is nervous, which can be a good thing.  In an article by Gordon Pape titled with shares running high, it is time to diversify, Mr. Pape examines some of the reasons the markets may correct itself.

On the positive side there does not look to be a recession coming, corporate earnings have been good, low interest rates remain, global growth continues and consumers are spending money.

What could tip the apple cart or push the markets lower?

Disappointing earnings – stocks trade on multiples based on earnings and if earnings are lower, then the market should correct itself. At the moment given GDP growth that should not be a major concern.

A major international debt default – as you look at the balance sheets of the G20 countries do see any likely to default? back in 1998 Russia did, but unless oil prices drop dramatically problem not.

Collapse of a too big to fail company – large corporations are a symbol of the strength of a company and the economy. When Lehman Brothers was allowed to go into bankruptcy everyone asked who is next and why are they not like the ones that are in trouble. In Lehman Brothers case the problem was real estate valuations – too high.

Protectionism – every country wants to protect their jobs and have access to markets where their countries who can pay for their goods and services. The world is a balancing act but at the moment, the US under President Trump seems to want all the advantages of trade and no disadvantages.

War – depends on the war, the markets react differently.

Linking to dividend paying stocks, while we all want the stocks we own to go up, if you take a long term view many will but there will be adjustments. Methods to protect yourself include buying fixed income or buying stocks which are profitable and pay dividends as they increase them over the years. In this fashion you have protection on the downside and gain wealth as quality stocks bounce back faster when there is a correction.

There are more questions than answers, till the next time – to raising questions.