Science is organized knowledge. Wisdom is organized life.
~ Immanuel Kant (1724-1804)
With politics, coronavirus and economic volatility I’m concerned about the safety of my financial future. What are your thoughts?
This is why financial planning is such a rewarding profession. As CFP practitioners, we here help people like you coordinate needs, goals, and most importantly, manage risk appetites while navigating an unpredictable world.
January 2020 was the first time US stocks were negative for January since 2016. This is attributed to fears of coronavirus resulting in global growth slowdown, 2020 being an election year, and other geopolitical tensions. Oil prices slid in response to concern for slower economic activity around the world, many equity markets dropped and the flight to safety trade pushed some fixed income prices higher.
Responding to external forces and making adjustments to fit individual situations is essential. For instance, on Marco Island, when the real-feel temp, which includes wind-chill factors, varies by 10 degrees, it causes tire pressure to decrease about 1 PSI (pound per square inch). This triggers the check engine light in my car and could put me into a panic. Upon further investigation, it’s apparent that air didn’t escape from my tires, the air inside the tire condensed and now takes up less space. The check engine light did its job and caused me to act accordingly and make proper adjustments. An analogy can be made with geopolitical news. There wasn’t a need to sell my car, or even to buy a new tire, only minor adjustments were required.
The facts are that U.S. Consumer spending remains steady, with personal consumption expenditure posing its 40th consecutive quarter of positive growth. The 10-year US Treasury Yield remains low, the US Dollar is strong, and volatility creates opportunity. Although energy use is down and consumer activity is slowed, utilities and information technology usage are up as the coronavirus causes a portion of the population to remain stationary.
Slow growth is still growth. Personal consumption expenditure (PCE) as reported by the Bureau of Labor Statistics (BLS) represents approximately 70% of Gross Domestic Production (GDP) or the total of all goods and services in the U.S. Government and private business each contribute roughly 15% to the total economy for the remaining 30%. Fourth-quarter 2019 GDP of 2.1% was the slowest pace in three years, yet it’s still positive expectations of improving due to anticipated capital expenditures and the housing turnaround.
Politics and sport also influence financial markets. Don’t worry, no political predictions here. However, keeping a close eye on that check engine light is prudent. Election years have historically been positive for markets, yet volatility and pullback potentials increase. Your risk appetite will be tested.
Sorry, St. Louis fans, data from the past 53 years of The Big Game shows that the market was better in the 12 months after an NFC win; up 12% on average compared to only 5% after an AFC win. There’s even market performance data available by total points scored and the differential, but we’ll save that for our friends in Vegas. Spending trends may prove more useful in answering your question. The estimated $17.2 amount spent on The Big Game was up $2.4 billion from last year and is the biggest year-over-year increase over the last 10 years.
Extended economic expansion makes some investors nervous, especially after the Great Recession and dot.com bubble which many retirees and pre-retirees experienced first-hand. What’s different this time is that current growth is primarily on technology and improved efficiencies. We do acknowledge that we have record corporate and household debt levels but need to recognize that interest rates are much lower, making debt service payments as a percentage of disposable personal income much healthier.
Artificial intelligence (AI) and its impact on productivity, personalization and product quality; that’s the game–changer for the future. The next column will focus on potential AI economic revolution.
All expressions of opinion reflect the judgment of Raymond James & Associates, Inc., and are subject to change. Information has been obtained from sources considered reliable, but we do not guarantee that the material presented is accurate or that it provides a complete description of the securities, markets or developments mentioned. There is no assurance any of the trends mentioned will continue or that any of the forecasts mentioned will occur. Economic and market conditions are subject to change. Investing involves risk including the possible loss of capital. 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. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. Past performance may not be indicative of future results.
The opinions expressed are those of the writer as of February 3, 2020, but not necessarily those of Raymond James and Associates, and are subject to change at any time based on market conditions and other factors. 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 results. The data and information contained herein was obtained from sources considered to be reliable, but accuracy and completeness are not guaranteed. “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 firstname.lastname@example.org Website: www.raymondjames.com/Darcie.