If you are having trouble keeping up with the rapid-fire economic news updates lately, we can’t blame you! The barrage of news headlines and tweets over the last few months has us pretty annoyed. If you were to only read the headlines, you might guess that the market is in a major correction with no hope in sight. But, the reality is that markets have largely gone nowhere in the last few months, and the S&P Index has increased 2.92% over the last 12 months ending 8/31/2019. No one knows what’s around the corner for the economy and the stock market – especially the media!
Right now, you can’t pick up a financial article without reading about the “certainty” of an upcoming recession, or how tariffs and trade war are causing chaos. The words ‘yield curve inversion’ are being casually tossed around by your next-door neighbor-turned-armchair-economist.
WHO’S THE BOSS – The US has long been the “older brother” to the rest of the world. Just as younger siblings mature and grow over time, foreign countries’ relationships with the US have significantly changed over time. Trade deals have not been re-negotiated in over 25 years; it is a GOOD thing that these deals are being looked at (we’ll leave it up to you to decide if manner in which the negotiations are being executed is effective). The volatility that we’re seeing now as it relates to the trade war is causing short-term pain, however, we believe it will be counteracted by long-term gain as the purpose of the negotiations is to ultimately benefit all parties involved.
IS THIS A DRILL? – Did you hear that someone pulled the ‘yield curve inversion’ alarm? Yes, it’s true, the alarm has been triggered. What we don’t know for certain, however, is if there’s any immediate danger. Like a fire alarm going off in a crowded room, the alarm doesn’t tell you if there actually IS a fire or a false alarm, or where the fire is, or how bad it is. Often times, the “fire” isn’t what ends up hurting people, but the panic that results from the alarm causes the immediate issues. We are here to help you NOT panic.
In short, the inversion is simply a signal that investors are less hopeful about the near-term prospects of the stock markets, and have bought a lot of bonds instead. But – this hasn’t always signaled an upcoming recession, it doesn’t tell us when the supposed recession could happen, and finally, we have our doubts about the reliability of a “trusted” indicator that is being so closely watched by the masses.
So what is there to DO about all the noise?
In short – nothing – which we admit, is easier said than done! With the holidays right around the corner, think about how you might send a thoughtful gift to a relative across the country. Many would choose to wrap the gift in bubble wrap, carefully insulating the contents against the dangers of a warehouse shipping distribution center. Sterling knows that your investment portfolio is one of the biggest “gifts” in your lives, and we want it to arrive in your retirement in one piece! So, what have we done to give your portfolio the best chance we can? We’ve bubble-wrapped it with the worst-case scenario in mind.
Over the last few years, we’ve already made changes to help insulate against what could go wrong. We’ve upgraded the quality of stocks and bonds in your portfolio. We’ve consistently taken profits and invested in undervalued assets as part of an ongoing rebalancing process. We’ve stuck to a proven, stable, and consistent investment strategy. Because of this, other than sticking with the process, there’s no need to make any immediate, reactionary decisions – the bubble wrap has been in place for quite some time.
We are in the longest bull market in history, and yes, eventually, it will come to an end. Sterling is not in the business of making predictions about what will happen in the next few weeks, months, or years, but we know that whatever happens in the markets, our duty remains the same – to help you navigate your life and your goals (financial and otherwise) and to keep your eye on the far off future – the “someday”.
The views stated in this piece are not necessarily the opinion of the Broker/Dealer and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.
The S&P 500 is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.