Saturday, January 19, 2019

Fighting Fear with Facts

Ask The CFP® Practitioner



“It is a present because it is a gift, and it is precious because anyone who receives such a present is happy forever. The precious present is just that, the present.”                                    

~ Excerpt from “The Precious Present,”
    by Spenser Johnson                                                   

This is a time of year to focus on what’s important in our lives. For our family, this year brought us to a place of gratitude for all the kind, caring and loving people in our life. As a result, we’ve been included in several pre-Christmas and other holiday celebrations. At some point during these gatherings the subject of market activity comes up in conversation. My response typically includes acknowledgment of fourth-quarter volatility as I suggest that specifics may be best discussed the next day when there are fewer distractions. I may also gently remind the inquirer that we’ve had a relatively strong and consistent recovery since the financial crisis of 2007-2008.

Most investors have experienced stock market volatility and are somewhat mentally prepared for this eventuality at some point. The fact remains that market gyrations can be unsettling. Since the S&P 500’s high of 2931 on September 20, the equity market has struggled and fell approximately 10 percent. While the reasons for the volatility in the fourth-quarter range from China trade negotiations to Federal Reserve Policy raising rates to quickly, the fundamentals and data do not suggest that it’s time to sound the panic alarms.

When emotion takes over its difficult to fight fear with facts.

Staying in the moment and focusing on what we actually know can be a challenge. Financial markets react to both fake news and real news. In the short-term, equity markets tend to overweight both pessimism and optimism, making it difficult to identify market tops or bottoms. Looking at a broader long-term perspective based on fundamental data may lead to cautious optimism. With 35 years in the financial industry, I’ve seen similar situations play out several times, but that doesn’t mean it’s easy to remain calm and be comfortable with the up and down cycles.

According to the National Federation of Independent Businesses, consumer confidence remains near the highest levels since 2000, with small business confidence at its highest since 2004. Lower gasoline prices may be a boost to the holiday shopping season. Moderate increases in interest rates show that the economy is stable enough to absorb tightening and the fear that the Fed would aggressively raise interest rates has appeared to diminish. An inverted yield curve alone isn’t an imminent sign of a recession or equity market top. It typically takes well over a year before this switch of short-term outpacing longer-term interest rates negatively impacts the economy or markets.

The combination of strong 2018 earnings growth and tax-cuts are helping profits; pre-tax corporate profits were up 10.3% from a year ago and up 19.4 percent after taxes as reported by the Bureau of Economic Analysis. This implies that markets may be undervalued as telegraphed by mediocre year-to-date returns. This is not consistent with the doom and gloom we are inundated with by mainstream media. On a good day, even crystal balls can be cloudy. The future is not ours to see, and that has to be okay.

Humans have been known to be emotional and may occasionally overreact. For instance, a Marco resident on a 60-degree day may get out the Ugg boots, a down filled parka, and sweaters for the dogs, perceiving the day to be bitter cold. The identical conditions would likely be a pleasant day to our grandchildren living in Albuquerque and North Carolina, proving that one’s relative starting point influences reactions to external conditions.

Financial markets have come a long way since the financial crisis and even further since the 2016 election. In our tenth year of global economic expansion, it’s not unexpected to experience a few hiccups. Growth certainly continues, but as we’ve said before, it’s all relative. The pace and rate of growth is slowing, yet it’s still growth. Lower unemployment, increased job openings and slightly higher interest rates all suggest a healthy economy.

This is the time of year to have hope and belief in possibilities and innovation. believe and you will receive.” I’d like to take this opportunity to express gratitude for family, friends, clients, readers who all who enhance the journey. Stay focused and plan accordingly.

There is no assurance that any investment strategy will be successful. All investments are subject to risk.  The opinions expressed are those of the writer, but not necessarily those of Raymond James and Associates, and subject to change at any time. The S&P 500 is an unmanaged index of 500 widely held stocks. It is not possible to invest directly in an index. Past performance may not be indicative of future.

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.” 

This article provided by Darcie Guerin, CFP®, 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 at 239-389-1041, email darcie.guerin@raymondjames.com. Website: www.raymondjames.com/Darcie.

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