Strange Economic Times
In our previous writings, we have preached caution, inflation, dividends, energy, gold, and value the past 18 months. We still believe in those stories, but several things give us pause as to the recent severe pull back in the market.
Every single person I speak with regardless of industry is still booming. Travel, home building, manufacturing, trucking, automobiles, banking, retail – they are still all very busy! That doesn’t mesh with the nearly 20% decline in the S&P 500 from it’s December high. It is a very strange time when everyone says they are very busy, yet the market is pricing in a recession. Someone is wrong.
The stock market is normally not wrong. Historically it is a good indicator of future events. That still has us worried, but with all of the automated trading systems, we wonder if the market decline has gone a bit too far, too quickly. Though we would still prefer a below-normal allocation to stocks for our clients, we believe the economy will be more resilient than the market has priced in, so perhaps a slower economic downturn awaits us.
We still see many growth companies that have declined tremendously (some 75 – 90% from their highs), yet still make no money and trade for very high multiples. The bloodbath for growth may not be over. Stick with dividends, profitable companies, energy, gold, and value. International stocks have begun to outperform the U.S. recently, probably because foreign investors are taking their money back home to invest. We have waited on a rotation to international stocks for some time, and we will keep an eye on it. Additionally, over the past two months, interest rates have risen to the level where individual investment grade corporate bonds maturing in 2-5 years are yielding greater than 3%. That won’t meet most of your required rates of return for retirement, but it will make a little something if the market funk extends into a multi-year downturn.
To better times ahead!
Nate Lovelle, CFA
All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.
Information contained herein does not involve the rendering of personalized investment advice but is limited to the dissemination of general information. A professional adviser should be consulted before implementing any of the strategies or options presented.
Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by the adviser), or product made reference to directly or indirectly on this website, or indirectly via hyperlink to any unaffiliated third-party website, will be profitable or equal to past performance levels. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee, the occurrence of which would have the effect of decreasing historical performance results. There are no assurances that a client’s portfolio will match or outperform any specific benchmark. All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s portfolio. Changes in investment strategies, contributions or withdrawals may materially alter the performance, strategy, and results of your portfolio.