Sunday, September 15, 2019

Cautious Optimism

Ask The CFP® Practitioner


“We either live with intention or exist
by default.”

~ Kristin Armstrong,
three time Olympic Gold Medal Winner

Question: What are your thoughts on how the economy is doing, and what is expected for the remainder of the year?

Answer: Economic activity is often measured and evaluated by leading economic indicators (LEIs). There are twelve LEIs so it’s not unusual for the data and conclusions to be mixed. That’s why the answer to your question is it depends.

The LEIs offer insight into consumption levels, output, trade distribution, interest rates and inflation all of which contribute to the economy. Just as a visit to the doctor’s office often begins with stepping on the scale, blood pressure check and a temperature reading to determine physical baselines, an evaluation of LEIs assesses the economy’s overall health.

The Consumer Confidence Index® is another measure which is reported on the last Tuesday of the month at 10:00 AM by The Conference Board, which is a not-for-profit organization. This figure along with other economic intelligence they supply identifies trends, business cycle stages, and are overall useful analytics. In May 2018, the Consumer Confidence Index® or CCI reached an 18 year high of 128 up from April’s 125.6 (see chart). Part of this increase may be a result of lower unemployment, corporate tax cuts, growth in manufacturing, strong housing demand and sustained global growth. The repeal of some pieces of the Dodd-Frank Wall Street Reform and Consumer Protection Act could promote more flexible lending at community and regional banks providing additional economic growth.

On the more neutral side of the equation, trade issues and expected higher interest rates could inhibit future growth in the CCI number. Also, the U.S. Commerce Department reports that as of April 2018 consumers are spending more and only saving at a rate of 2.8%. Before the Great Recession, the savings rate was below 3.00%, rose to 8.1% in May 2009 and hit a high of 11% in 2012. This lower savings rate warrants attention.

Because we’re a global economy, it’s best to look at U.S. and worldwide information when evaluating overall economic health. Here are a few key areas to examine.

Equities (Stocks)
Small companies are expected to continue with their strong relative performance, recently partly due to the belief that tax-reform will continue to benefit these companies. Yet higher oil prices could dampen the growth effects of tax-cuts if energy costs continue to increase. Trade battles and tariffs are a wildcard for stocks.

Fixed Income (Bonds)
Not even the Federal Reserve Board knows exactly what they’ll do about interest rates. The economy is showing sustainable growth rates so it’s likely and expected that interest rates will continue to gradually rise with the Fed tapping the brakes to keep growth in check. The question is how much and when, and the answer is it depends.

International
While the U.S. economy steadily improves, Europe’s financial health is a bit more delicate. As this column is being written ahead of publication, we’re closely watching negotiations between the U.S. and North Korea. This historic meeting follows an awkward G7 gathering which included Canada, France, Germany, Italy, Japan, the United Kingdom and The United States. And let’s not forget the political turmoil in the third largest economy in the Eurozone which is Italy. Investors and consumers want guidance, vision and inspiration from all leaders, including those in Europe.

High debt levels in countries like Turkey and Argentina could move interest rates higher and bring requests for help from the International Money Fund. Lastly, we hope ongoing trade discussions between the United States and China are moving in a positive direction.

All told, many financial markets held steady or increased during the first-half of 2018. On the horizon there are lingering concerns about higher oil prices and transportation costs, a rising U.S. dollar, the potential for higher wages and interest rates. As we move into the second-half of 2018, growth and economic conditions remain favorable. Cautious optimism has taken the place of previous extremes or irrational exuberance and doom and gloom sentiments.

Current market events and economic conditions are just that; current measures. Global economies are expected to regularly go through temporary soft patches. This is why it’s suggested that investment decisions be made based on your unique long-term goals. A well-diversified portfolio should allow you to participate in upside potential as well as serve as ballast for any short-term volatility. Stay focused and plan accordingly.

Views expressed are the current opinion of the author, but not necessarily those of Raymond James & Associates. The author’s opinions are subject to change without notice. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Past performance is not indicative of future results. International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. Asset allocation and diversification do not guarantee a profit nor protect against a loss. It is not possible to invest directly in an index. The S&P 500 is an unmanaged index of 500 widely held stocks. The U.S. consumer confidence index (CCI) is an indicator designed to measure consumer confidence, which is defined as the degree of optimism on the state of the economy that consumers are expressing through their activities of savings and spending.

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S.”


This article provided by Darcie Guerin, CFP®, Associate Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached by phone at 239-389-1041, or email darcie.guerin@raymondjames.com. Website: www.raymondjames.com/InvestmentInsights.

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