A client recently came into my office to adjust his portfolio for a recession. His retail business and those of his friends are finding more “lookers than buyers.” In January, I had another client do the same based on economic slowdown data their employer was communicating.
No doubt there is “bad” data out there. The Fed is likely to cut short term interest rates twice this year in an effort to keep the US economy expanding. The trade deal with Mexico and Canada has not been passed by Congress. The U.S. consumer will pay increasingly higher prices as China tariffs are set to increase another 25%.
Taking the opposite perspective, unemployment is historically very low at less than 4%. On July 3rd, all three averages (Dow, NASDAQ and the S&P) exceeded their all-time highs. 10-year US Treasury bond yields continue to hover at 2% while a 10-year German bond yields about - 0.33%. (Source: Bloomberg as of 6/26/19). This makes US debt more appealing and portends that US interest rates are likely to stay lower for longer.
Since I bought my first stock and first mutual fund in the sixth grade, I have always been amazed by the fact that for everyone buying a stock (wanting/expecting growth of it) there is a seller (expecting lower prices of the exact same stock and cashing out). I paid $4.99 for celery hearts at my local grocery store last week. It certainly seems to me, personally, that prices are going up which implies inflation is going up and interest rates should follow and rise too. Right? Well, so far not really.
So what’s an investor to do? Jump out of stock market since it hit highs on July 3rd and into the ‘safety’ of bonds? My advice is to stop trying to read the tea leaves.
All investors need some growth in their portfolio to combat inflation over the long run. All investors also need income in their portfolio to meet current cash flow needs or for diversification to balance out their equity volatility. Understanding your personal time horizons is much more important than macroeconomic tea leaf reading… or at least that’s what I am currently thinking.
By Debbie Craig CFP®, MBA, CRPS®
Any opinions are those of Craig Wealth Advisors and not necessarily those of RJFS or Raymond James. There is no assurance any of the trends mentioned will continue to forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.