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State Investment Officer: Stocks Headed for 40% Correction—Thanks, Trump Tax Cuts!

South Dakota’s veteran investment officer Matt Clark usually brings good news. But at Thursday’s meeting of the South Dakota Retirement System Trustees, he said the state’s pension investments are flat so far this fiscal year:

State investment officer Matt Clark said the SDRS portfolio through the first five months of this fiscal year has earned “roughly around zero. So there is no return.”

Clark said stocks that SDRS owns out-performed last year and are running behind this year. Only about half of the SDRS portfolio currently is in equity investments. Asked to look ahead, he said, “Unfortunately, we can’t be optimistic at this time” [Bob Mercer, “As Investment Chief Sees Storm Clouds Ahead, SDRS Trustees OK a Record Cost-of-Living Hike,” KELO-TV, 2021.12.02].

Clark predicts the situation won’t improve in the near-term as the market must correct itself from over-valuation driven by the Trump tax cuts:

By his calculation, the U.S. stock market is at 166% of fair value and he expects the market will be hit at some point by a 40% loss. “The markets never stay overvalued forever.”

Clark said federal tax cuts helped keep Wall Street prices inflated, and now that Congress is spreading trillions in COVID-19 and infrastructure relief, inflation has reached Main Street and Walmart too [Mercer, 2021.12.02].

Note that spending on the pandemic was necessary to prevent a depression, while spending on infrastructure is necessary to sustain economic opportunity and growth. The tax cuts that John Thune, Mike Rounds, and Kristi Noem approved four years ago appear to have done nothing but pad fatcats’ pockets, increase the deficit, and drive a market bubble that Clark says is going to pop and depress pension returns for South Dakota’s public employees.

22 Comments

  1. Richard Schriever 2021-12-04

    It seems to me that Republicans have learned to write policies specifically timed to create devastating economic effects as they have an administration and congressional control heading toward a cyclical change to “the other guys”, so they can use rhetoric to convince a short-sighted electorate the “other guys” are the cause of their problems. Knowing that the Trump tax cuts (which for the middle class will begin to expire in 2025 – https://www.theatlantic.com/politics/archive/2017/11/republicans-slap-an-expiration-date-on-middle-class-tax-cuts/545996/) combined with the impact on markets (2023?) seems to inform that that is indeed a planned economic downturn, to coincide with the end of Trump’s fantasy 2md term.

  2. Donald Pay 2021-12-04

    Even though I never would qualify for most of the Trump tax cuts, I realized those cuts would juice the market. I did some careful investing and took advantage. Why not? It was great for those of us who have some money to invest, but for most of America who don’t have spare change left over after paying the month’s bills, the Trump tax cuts amounted to diddly squat.

    I’m mostly out of the market now because there is a reckoning coming. Mostly I set moving limits to assure I keep most of the money I make when the market drops, as it did last week. I protect against downside risk, which means I pass up some upside opportunities. I keep some money in the various clean energy ETFs that I like. ETFs with wind and solar are keeping me ahead of inflation.

    A 40% drop would be more than a correction. I’m not sure it will go down that far, but it’s vastly oversold.

  3. Donald Pay 2021-12-04

    or I should say overbought.

  4. grudznick 2021-12-04

    The financial world will crash soon because of President Biden printing and raining fake money from the skies. Then those slackards who refused to return to work will rue the day.

  5. O 2021-12-04

    grudznick is correct, the USFG should not be spending money “from the skies”; instead, it should be spending money taxed from the cheats not paying and the mega-rich underpaying. Otherwise grudznick will need to go back to work and be off the government welfare.

  6. Porter Lansing 2021-12-04

    Wall Street is down because of uncertainty in Omicron.

    Buy The Dips

    I bought Disney, this week.

  7. O 2021-12-04

    It is worrisome that the US economy has become the stock market. There are no other indicators even discussed anymore when on the topic of the health of the US economy. I would argue that the stock market has become too big to fail, and as we never learn from our history, any major drop will be of sutch a YUGE crisis economically that federal action will be “required” to bail out the investors (who now personify the US economy).

    Beyond tech stocks or mortgage derivatives, the “bubble” is the US economic system itself.

  8. RS 2021-12-04

    So when the Republicans gave the wealthy families and corporations a trillion dollar tax cut to stimulate the economy. (Remember it would pay for itself). Those individuals and corporations went on a buying spree of share buy backs, mergers and more Wall Street stock instead of creating more jobs and products. The day to day worker and consumer didn’t get better wages to buy anything, or more job offers when mergers closed competition. So much for the so called “Jobs Act”.
    Covid starts and the money from government flows to those day to day workers and the economy comes roaring to life. Corporations can expand because they have buyers with money for their product. Unemployment rate now is almost historically low. Isn’t that what would be called a “Jobs Act”?
    Dusty votes against the infrastructure bill because he wonders how we will continue to fund at that level and future generation will be stuck with the bill. Hey, you build a bridge it should last 50-75 years and who is going to be using it? Future generation. With his mentality we would never have built anything to travel on, drink from or communicate with.

  9. Cory Allen Heidelberger Post author | 2021-12-04

    Grudz’s attempt to shift blame ignores two key points: (1) as both O and RS suggest, the Trump Admin and GOP Congress triggered far more deficit spending and left the Treasury with far less cash on hand to deal with the pandemic or invest in infrastructure, and (2) the spending on the pandemic and infrastructure are necessary and far preferable to the alternatives of (a) letting coronavirus trigger a full-tilt global economic collapse and (b), as RS alludes in his assessment of Dusty’s unstated preference, letting our roads and bridges crumble to unusability, which would bring its own long, lingering economic drag.

    Any inflation caused by government stimulus and investment to deal with real public crises is an acceptable side effect of smart government. The stock-market inflation Clark identifies and the correction (crash, Donald?) that he predicts will result from the unnecessary Trump tax cuts are undesirable economic results no broad counterbalancing advantages.

  10. Porter Lansing 2021-12-04

    Let’s retire the fallacy that government, corporations, or individuals can create jobs.
    Demand and demand only creates jobs; that’s why there’s a worker shortage.
    The demand for goods/services is at an all time high.
    So is retirement of baby boomer workers.

  11. Mark Anderson 2021-12-04

    If you lie long enough you’ll turn into grudz.

  12. cibvet 2021-12-04

    Mr. Clark has a 50/50 chance of being right or wrong. Should the market go up, no one will remember his prognostication and if it goes down, he can say “I told you so”. At the moment, the market is receding some because the investors are having a hissy fit because the Fed has threatened to take away some of their free money. Most investors are pubs and while they rail against free for the lower incomes, they spend their whole life playing the system for freebies for themselves.

  13. ABC 2021-12-04

    Is Clark a “GOAT” (Greatest of all time) as in Tom Brady?

    Let’s take a look–

    Clark says, Uh 5 months (May 31, 2021) we earned ZERO. (He could have put it all in Reliabank’s Money Market savings and got a return of 0.45 % for the year). So he has been running the state money as a casino, and this is not an Up year.

    Or is it?

    Take a look at VOO. https://investor.vanguard.com/etf/profile/VOO

    Vanguard Standard and Poor 500 Index Fund

    1 year— (roughly from Dec 4 2020 to Dec 4 2021)

    UP 27.87 %

    !!!!

    How come a Progressive like me can find a better investment than Clark?

    So he predicts a 40% downturn in the state’s money?

    He’s trying to outperform the S and P 500, instead of investing in it, which would create profits most years, but not all years.

    When I look at the S and P itself, and ask for a 6 month return it shows this- (7.29%)past 6 months So UP 7% since June 4 !!!

    https://www.google.com/search?q=s+and+p+500+last+6+months&rlz=1C1CHBF_enUS949US949&oq=s+and+p+500+last+6+months&aqs=chrome..69i57j0i390l3.7985j1j7&sourceid=chrome&ie=UTF-8

    So he lags the S and P index by 7% over the last 6 months?

    The news is S and P is up. The SD news is our investments are up 0 this year.

    Hire someone better.

    State money is not a casino. If your last name isn’t Buffett and you don’t live in Omaha, ah, just invest 95% in the S and P 500, and choose carefully where the other 5% goes.

  14. John 2021-12-04

    Clark, and the rest of the rainy day choir, ignore the increases in worker productivity.
    For example, the number of workers went down in 2020 and 2021, yet company profits increased. Productivity will continue increasing in foreseeable decade as artificial intelligence, robotics, genome sequencing, energy storage, and blockchain technology continue their industrial revolution. The millennials are the largest generation (a larger shadow of the baby boomers) and are in their high spending years – which facilitates the bull market. The market will continue with sector corrections, and two steps forward, one step back while continuing upward for the decade.

    Consider perhaps, that Clark, along with the loser hedge fund managers, have having sour grapes. Clark was up 8% when the index was up 30% in 2020. Clark is flat while the market index is up >20% in 2021. Consider whether SD would be in better shape replacing Clark and his staff to hold the market index. Buffett won a big bet that index funds beat hedgefunds. South Dakota should have listened.

  15. grudznick 2021-12-04

    Mr. Clark probably makes a pretty good salary. I bet you he is one of the most paid in the legislatures. I say if you can do better and do it for less wages you should apply to the Council of Legislatures Research. They take applications over the internet.

  16. DaveFN 2021-12-04

    If the financial world will crash it’s not because of Biden.

    The Shiller PE index has been above the historical average of 17.2 since before 2000, and at 39.9 it’s currently 55.2% higher than the recent 20-year average of 25.7.

  17. grudznick 2021-12-04

    Mr. Biden is tanking the financial world. This is known.

  18. John 2021-12-04

    The millennials are in the midst of their household creation and spending. The market will have rolling sector corrections, adjustments, bu the bull market will roll for several years.
    https://allstarcharts.com/not-a-bear-21/

  19. Jake 2021-12-04

    Truth of the matter is if you feed an economy at the bottom (lowest paid) it ($$$) will flow to the top-always. Only a couple three years back, Bernie was heavily advocating $15.00 min wage-now today, businesses are finding ways to pay these higher wages and the economy is fueling right along.

    Yes, covid $ went to a lot of the bottom workers (thankfully) in unemployement etc, but this fed the economy cuz they spent it almost immediately. But you have to realize that 90% of the $15.00hr jobs goes into the economy in the next payperiod-not into the stock market.

    You want an economy to roar-feed the bottom….

  20. Cory Allen Heidelberger Post author | 2021-12-05

    President Biden is saving the economy, short-term and long-term, from Trumpist neglect and plutocratic raiders.

  21. O 2021-12-05

    The GOP through action with President Trump and inaction with President Biden is tanking the financial world — this is known.

  22. Arlo Blundt 2021-12-06

    well…it won’t be the first time the market has undergone a so-called correction and, after a pause, it will be a good time to buy cheaper stocks. As we have found with the profusion of Trusts in South Dakota there is a lot (Billions to trillions) of loose cash, some ill gotten, floating around the world looking for a safe place to be parked. Trusts in South Dakota are one place, the stock market another. There aren’t many more, thus stocks are always an option, so are bonds.Second big influence is companys buying back their own stock. This increases stock values and produces big bonuses for executives. It does nothing positive for the economy. When stock prices decrease dramatically, companies buy back their stock. Third, the Wealth Management industry continues to recruit an army of new investors through retirement plans. Retirement plans have pluses and minuses but are relatively secure ways to become self reliant in retirement.The alternative to stocks and bonds is Real Estate. It is labor intensive and far from a sure thing. Best advice is invest in what you know well.

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