This month’s volatility, reminiscent of the drawdown in February and March, has temporarily taken away much of this year’s prior market gains. And international markets, small caps, and bonds have also struggled recently, putting a greater drag on diversified portfolios.
While this never feels pleasant, what we are experiencing now is most likely NOT the beginning of a full-blown recession. It is more likely a temporary correction from a frothy, over-valued market to a more sustainable market, much like what we experienced at the beginning of the year.
The underlying economic engine is doing well, and according to reputable economic research, this bull market likely has a year or so left in it.
The Conference Board’s Leading Economic Index® for the U.S. increased again this past month. “The US LEI improved further in September, suggesting the US business cycle remains on a strong growth trajectory heading into 2019. However, the LEI’s growth has slowed somewhat in recent months, suggesting the economy may be facing capacity constraints and increasingly tight labor markets,” said Ataman Ozyildirim, Director and Global Research Chair at The Conference Board. “Economic growth could exceed 3.5 percent in the second half of 2018, but, unless the momentum in housing, orders and stock prices accelerates, that pace is unlikely to be sustained in 2019.”
And the National Association for Business Economics (NABE), continues to hold a positive outlook on the economy that drives the markets. In their most recent survey of economists, the percentage of panelists expecting a recession in 2019 fell relative to that in the June survey. One-third of respondents expect that we will not see a recession until 2021 or later.”
Even though I expect the economy and markets to continue forward for now, a recession is inevitable at some point. We are at the mature phase of the cycle and risks are beginning to increase. Trade tensions, politics, potentially greater inflation, and rising interest rates lead the headlines. This should not unduly concern investors who are in diversified portfolios appropriate for their plan and risk tolerance – recessions have been factored into your plan. And timing them can be very challenging. But, if you are concerned about your risk, now is the time to do a thorough review of your plan, risk tolerance, and portfolio strategy.
If you would like to discuss the above article, please call Greg at 316-440-2550