You should never underestimate the importance of a good night’s sleep. Karin and I have always felt that if clients are sleeping well, it might be a sign we are doing a good job. :-) If that is true, then according to an “informal survey” we took during our last several meetings, clients haven’t been getting shortchanged on their ZZZ’s lately. That’s a good thing!
This doesn’t mean there has been a shortage of questions for us, based on what is going on in the world. While not “big” worries, we thought it might be valuable to list some of the questions we have been hearing as of late, in case they are your questions, too. #9 could be the one that has the most impact on your portfolio…see what you think.
- Could there be a US or global recession this year? The second half of 2018 saw a shift from global growth to an slowdown across most regions. Nonetheless, we still saw growth. Corporate earnings aren’t growing as fast these days, but they are still growing. Therefore, we do not expect to see a US or global recession materialize in 2019 and we also believe that growth will remain solid, even if clearly below 2018 levels.
- Are more Fed rate hikes forthcoming? Given the expected slowdown in growth, fears about the trade war with China and (still manageable) inflation, markets are currently expecting no hikes for the whole of 2019. We are not so sure, and also not sure it even matters to the average investor.
- Can China manage its latest economic slowdown? Chinese growth is in a multi-year structural slowdown. The latest deceleration is due to the impact of US tariffs, but we believe that China will continue to ‘manage’ this slowdown, therefore avoiding a hard landing and any systemic risks.
- How might political turmoil affect markets? Many of the pundits think political “noise” could ease with trade deals, but we feel that as the year passes and the next election grows closer, tensions will likely continue and be even noisier. Just remember that corporate earnings drive markets, but “noise” drives volatility.
- Is an escalation in the US-China trade war likely? While there is still some risk that the trade war escalates before easing, most “experts” believe that some kind of deal between the two superpowers is likely. This could be especially good for emerging market investments.
- Will Brexit actually happen? Following the failure of Prime Minister Theresa May’s Brexit plan in Parliament, uncertainty remains extremely elevated. Ultimately, we believe that some form of Brexit will happen, though more twists and delays are likely. Either way, the effect of this, even on an international stock portfolio, is likely very limited.
- Should investors expect a US yield curveinversion? We expect 10-year US Treasury yields to remain capped by growth fears. With interest rate hikes being less of a concern, we don’t see short term rates exceeding the 10-year rates.
- What’s the likelihood that markets will post positive performances this year? The S&P 500 is already up close to double digits. Historically, this bodes well for end-of-year numbers. Based on current valuations and earnings projections, markets are either under-valued, or earnings are over-valued…they can’t both be right.
- How strong is the US dollar? In an environment where economic growth is easing and the Fed is more dovish, the dollar could soften somewhat. If the dollar weakens, foreign stock values tend to increase. And if the China trade situation lessens as well, this could be a “double positive” for investments outside the U.S. Many of these holdings are already at much lower valuations than our U.S. stock market, so the opportunity is there.
- Will oil prices remain under pressure? Oil has recovered from last year’s low prices, but we continue to believe that supply remains ample, acting as a cap on prices. We therefore expect prices to remain within a broad range.
These questions are important, but they may or may not be important to you. It is always best to start with the most important question: “Am I going to be Ok?” From there, we can have an educated conversation about your financial plan and your family’s wealth. How the world economy is doing - while it makes for lively cocktail conversation - is rarely a client’s greatest fear.
Worrying about the markets, is first and foremost, is a financial planning problem. Don’t let it be your problem. Make sure your financial plan is up-to-date and ready for 2019…or call us and we’ll do it for you.
This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed may change based on market and other conditions. All investing involves risk, including the risk of loss. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.