As the fourth quarter of 2019 began, volatility in financial markets has ticked up a little bit as worries seemed to intensify, then dissipate, only to have intensify again over a number of factors. Manufacturing has slowed, oil prices bounced around after the attack in Saudi Arabia, and impeachment talks have heated up. However, dovish central banks and expectations for rising earnings have stemmed the bleeding, and investors have poured back into markets, driving stock prices up when they dip too far.
The models I follow depict this market in flux. On one hand, I’m very worried about the consecutive decreases in railcar and trucking loads. Lower GDP revisions reflect a slowing economy. A strong Dollar has made earnings comparisons tough for US-based multinational companies. The flat yield curve is challenging for financial institutions, and initial jobless claims have been ticking higher, albeit from very low levels.
There are also a number of factors that should support the stock market. Low-interest rates generally drive investors away from bonds and toward stocks. The Federal Reserve has indicated that they will continue to be supportive of conditions that favor stocks. President Trump has, to this point, de-escalated trade tensions after stock market pullbacks. And while manufacturing has slowed down, it is not as big of a component of our economy as it used to be. So, as long as the rest of the economy doesn’t fade, we could still see some growth. On my long-term charts, it appears as though the bull market is still intact, although with the S&P 500 up about 2.25% (according to Morningstar) in the last 12 months as of October 8, it is sputtering, not racing, higher.
Earnings growth from 2019 to 2020 looks tepid so, given that earnings are the lifeblood of stock prices, this indicates the continuation of moderate stock market growth. Of course, any number of factors (tariffs, war, terrorism, Federal Reserve policy) could affect the earnings estimates, positively or negatively. Also, we hope to identify stocks for you that will grow at more than market rates, which could boost your returns.
Combined, this reminds me of approaching an intersection and seeing a flashing yellow light. You don’t have to come to a stop, but you should slow down and look carefully before you cross. Given that there is so much “traffic” now in the form of all the factors I have mentioned, now is a great time to re-evaluate your investments and look carefully before proceeding. If you’ve completed a Signature Life Plan with your advisor, let that be your roadmap. If you have not, I encourage you to create the plan. There’s not much sense in taking too much risk, and conversely, you may have to take on risk to achieve your goals.
Our views are subject to change quickly, particularly given the speed at which markets move today.
As always, these opinions are mine, and may or may not be the same as those of Raymond James. This is not a solicitation to invest, although we do invite you to review your portfolio with us to see if any changes should be made.