U.S. stocks ended mixed in February and have shown continued improvement so far in March. So things are getting better, right?
Some financial commentators are bullish. Some are not impressed and think the possibility of a recession is still fairly high. But economic forecasters can sometimes be compared to sports analysts predicting who’s going to win. They won’t all agree, they won’t all be right, and something could happen that surprises them all. If you are into the NCAA basketball tournament and have filled out a bracket showing what you are pretty confident is going to happen, we’re sorry to tell you that there’s only a 1 in 9,223,372,036,854,775,808 (1 in 9.2 quintillion) chance it will be perfect (businessinsider.com/odds-of-perfect-ncaa-bracket-2015-3).
So what should we make of the economy right now …
A standard economic principal is that healthy stock markets move higher driven by economic growth and increasing corporate earnings. Neither is really happening right now, despite the market recently rising.
Economic growth so far is 1%. The fact that some are calling that moderate growth shows how relative a perception it is.
Consumer confidence has not improved that much. Retail sales have been weak: Official data showed U.S. retail sales falling in February, and a previously reported rebound in January was revised to show a 0.4% decline (Commerce Department).
On the corporate side, the strong dollar has restricted economic growth in sales of goods outside the U.S.
Oil prices are rebounding some, but the category is still weak. Global supply has been outstripping global demand, and that oversupply is still growing. But note that it’s a problem of too much supply, not necessarily falling demand (which would signal the possibility of a global recession).
Employment is expanding as is participation, but most new jobs are part-time or in the low-paying services sectors.
There is overseas economic weakness.
And while the financial markets are doing well, a closer look reveals that markets are still rallying based on corporate buybacks.
The Federal Reserve finds itself unable to hike rates and has scaled back forecasts for how high interest rates will climb in 2016. Some even think it may need to lower rates again or introduce some kind of monetary stimulus to keep the equity markets going.
It is going to be an interesting year.
If you are young, daily or weekly monitoring only lifts you up or brings you down. When you won’t retire for 20 or 30 years, today’s value doesn’t matter if you have a disciplined investment plan in place.
Many of you are nearing or in retirement. Our more conservative portfolios are designed to try to limit the downside in turbulent markets while still keeping some exposure that allows us to capture upside when stocks rise.
So try to avoid watching the daily ups and downs, especially with the high volatility we’ve been seeing. Warren Buffett has some good advice:
“Games are won by players who focus on the playing field—not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.” (Bloomberg)
While none of us enjoys seeing the market decline, it’s important to remember that it never goes up in a straight line.
The individual plans we recommend do not eliminate risks, but they do attempt to mitigate some of the risks in a volatile or down market.
Remember also that in addition to investment management, we offer full financial planning services. Please call or email our office sometime to see if we can get you started on a full financial plan. This kind of comprehensive look at your circumstances, assets, and goals will help us put you on the road to financial peace of mind.