Thursday, August 6, 2020

What’s Next?

Ask the CFP Practitioner

Submitted

Fear, uncertainty, and discomfort are your compass toward growth. ~ Celestine Chua, author of “Personal Excellence.”

Question: What do you think will happen with current financial markets while we’re in the midst of so many economic and political issues like China trade tariffs, impeachment proceedings, and the upcoming U.S. presidential elections? It’s difficult to know what to think when listening to the news. 

Answer: The answer to your question about what could occur with the financial market in light of recent and ongoing topics in that short-term is that we just don’t know; markets are made up of individual companies. Human behavior can be highly influenced by emotion and there is a herd effect when everyone rushes toward an entrance or exit door at the same time. Logic tends to dissipate as a factor in decision making. Human behavior tends to be driven in the short-term. Overall, the market mood remains generally positive in-spite of the unceasing news and noise. 

It’s likely safe to expect continued volatility in response to these matters: The Chinese trade talks, along with China’s compliance with intellectual property rights, remain as key sticking points. 

As November came to a close, financial markets did show positive momentum, despite all of the distractions mentioned above. The markets may be pricing in any progress on trade talks and not expecting a major jolt from impeachment or the election; this could easily and quickly change if the December 15 tariffs go into effect. More volatility could also occur as who are the Presidential candidate frontrunners during the primaries and caucuses. 

Focus on Fundamentals

Economic growth continues to be supported by the Federal Reserve’s easy-money policy, strong labor market conditions and inflation running near the Federal Reserve’s 2% goal. Fed Chairman Jerome Powell implied that short-term interest rates are on hold for the time being, with the usual caveat that the central bank would cut rates again “if the outlook changes materially.”

Domestic economic fundamentals are still solid and quieting the risk of recession over the next 12 months. Other good news items according to Raymond James’ Chief Investment Officer Larry Adam are a better-than-expected third-quarter earnings season, the S&P 500 posting its best November gain (3.63%) since 2009, while it scored 11 record highs during the month and positive trade talks. The optimistic performance was a continuation of the strong gains experienced throughout 2019, with markets having notched 25 record highs since January. 

The China Syndrome

Our Washington Policy Analyst, Ed Mills suggests that increased tension over human rights issues with China and a lack of clarity currently surrounding the December 15 tariff imposition are raising fears. We’re seen first-hand with clients’ that Visa restrictions for anyone coming to the U.S. have begun to occur. 

It’s difficult to know if President Trump is punting the issue into 2020 or already has his next move in mind. Could he be setting up pressure points to incentivize a deal, or is he trying to take attention away from the impeachment process? 

It’s risky business writing in advance about issues that can change day-to-day, let along by the hour. For instance, in the bill signing the statement on the Hong Kong legislation, President Trump left open the possibility of not implementing key provisions because they could conflict with the executive office’s authority to set U.S. foreign policy. This may suggest to Beijing that any U.S. actions to support Hong Kong protestors will remain a card in the U.S. deck, but can be held off to allow negotiations to proceed.

As of December 5th, when this is written, we’re still waiting on confirmation of whether a U.S. delegation will travel to Beijing at the invitation of Chinese officials that had been communicated late November. If a trip takes place, it could have already been announced when this is in circulation. Negotiations over this matter could provide an opportunity to rebuild good faith around avoiding the December 15 tariffs. Alternatively, direct intervention by Trump and Xi following a phone call could extend the current tariff schedule. 

There is speculation that the November Asia-Pacific Economic Cooperation summit could be rescheduled for some time in January, and an agreement of a one-month tariff delay by the two leaders would better align negotiations is possible. A delay could benefit both sides as it would likely decrease Congressional attention on human rights issues given expected end of year actions on government funding, impeachment, and ultimately recess for the winter holidays, which could provide ample time to reset the U.S.-China relationship heading into 2020. In other words, there’s plenty of drama in store.

News and Noise

By taking a step back to recall that financial markets consist of publicly traded companies representing eleven major sectors of the economy may alleviate the discomfort of volatility for investors who have a regularly monitored and personalized long-term financial plan in place. Times like these are another reason we suggest that you know what you own and why you own it. Stay focused and invest accordingly.

Financial markets and our office will be closed on December 25th and January 1st. We wish you a joyful and peaceful Christmas and a healthy and prosperous new year!

The data and information contained herein obtained from sources is considered to be accurate and reliable, but accuracy and completeness are not guaranteed. The author’s views are as of December 5, 2019, and subject to change based on market conditions and other factors Information obtained from outside “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®, First 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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