Our Eye is on the Horizon, Part 1
By Jay Sanford, Director, Investment Strategy
I’m going to start with the bad news and it’s a secret, so please keep this close to the vest… the stock market will eventually go down! I know, I know, it’s hard to believe. We have had 9 years of growth (albeit slow at times) and the fundamentals and stimulus make it a reasonable assumption this stock market still has legs.
So the question should be two fold:
- When will this market begin and maintain a consistent descent?
- What should I do about it?
I’m going to make this a two part blog, so you come back for more. *Teaser Alert*
So, the answer to part one is, Who Knows?!?! There is an infinite amount of variables out in the world that could trigger the downturn. From geopolitical issues, to corporate scandals, to rising interest rates to poor government policy decisions. That doesn’t even include a Black Swan event, which, by definition, we don’t even know what that could be!! (Side note: I loathe people that call anything that we currently see in the market as a Black Swan. The very definition of Black Swan prevents us from knowing it!)
We do follow and chart many things going on in the market that could give us a clue that a recession is coming. We closely watch the yield curve, we closely watch the output gap and we utilize LPL’s research in watching the various aspects of the business cycle that can be tracked. An inverted yield curve (when short term rates are higher than long term rates) and a positive output gap (real production vs. potential production) tend to signal recessions are near. We currently have a positive output gap, but the yield curve remains in tact (granted, it is flattening some).
Bottom line: We don’t know when the markets will turn, but we know they will. Data points are still positive, but are pointing towards the inevitable. We stand vigilant.
Now, what should YOU do about it?
Tune in next time, same WFG time, same WFG channel.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
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