The Beginning is the End is the Beginning: A Look at Recessions
Recession chatter is abundant lately. It’s increasingly the focus of Q&A sessions at investor events at which I’ve been speaking. I also received a series of questions last week about recessions from a Schwab colleague who has many younger Schwabbies on his team, most of whom have not lived as working adults through a recession.
Be Careful What You Wish For
Markets got a healthy reprieve from last year’s fourth quarter carnage as a few headwinds became tailwinds; including a more dovish Fed, some hopes on trade, strong fourth quarter earnings growth, and an end to the government shutdown.
Mixed Market Messages
It’s difficult to get good footing in a market that has so many mixed messages bombarding it. We recommend patience, discipline and diversification as expect continued bouts of volatility. The U.S. government shutdown is over, for now…and the Fed is in pause mode, for now…but confidence in government is low and monetary policy is likely to persist. In the near term we believe the most important needle-mover will be the result of trade negotiations between the United States and China. The problem is the inability to gauge the likely outcome.
Every Rose Has its Thorn: Healthy Rally, but Risks Linger
At a recent client event I was asked about our ongoing view that volatility would remain elevated—specifically, whether the rally off the December 2018 low in U.S. stocks was an indication that our view might be wrong.
Keeping Calm in the Chaos
It can be difficult to remain calm in the midst of stock market action like we’ve seen over the past couple of months—but discipline is necessary during more tumultuous times. Although we do see rising risk of a recession, we don’t see a repeat of 2008 in the cards. Absent a recession—even if we enter a “formal” bear market (at its recent closing low, the S&P was down 19.8%)—additional weakness may be somewhat limited. Recession-related bears tend to be longer and grizzlier than non-recession bears. Until we get more clarity on the health of the economy, we continue to suggest investors remain defensive.
What’s Going on With the Yield Curve?
The yield curve has appeared in quite a few news headlines recently. Why is this technical-sounding tidbit of financial jargon suddenly getting so much attention? The short answer is that the yield curve has a reputation for predicting recessions, and some market watchers are worried recent changes to the curve’s shape are sending a warning signal about the economy.
Gathering Storm or Passing Clouds?
The end of 2018 will likely morph into more of the same in 2019—higher volatility within a relatively wide equity range, including ongoing corrective phases or even a continuation of what has been a “stealth” bear market this year (rolling bear markets across and within asset classes).
Market Correction: What Does It Mean?
When a stock index falls by more than 10%, it is often said to have entered “correction” territory. That’s a fairly neutral term for what feels like a nerve-wracking drop to many investors. What does a correction mean? What’s likely to happen after a correction, and what can you do to help your portfolio weather the downturn?
The Best Way to Travel: Musings from Asia
I spent last week in Asia—two days in Hong Kong, one day in Shanghai, and two days in Singapore—visiting our clients. It was a fascinating trip in some of my favorite cities in the world … well, in the case of Singapore, a city, island, and country all in one.
The Seasons of Investing
October has again been a scary month for investors, even though past performance does not indicate future results, history shows that stocks tend to face a seasonal tailwind heading into the end of the year. There will likely be more volatility but at least overly optimistic investor sentiment has eased, U.S. economic growth remains solid, and the midterm elections will soon be over, all of which could trigger at least a relief rally off the recent lows. But gains both here and globally are likely limited by myriad late-cycle pressures. Remain disciplined, consider diversification and rebalancing, and consider establishing a more tactically defensive positioning.
Always Be Prepared
Stock market action recently illustrates again why it’s important for investors to remain disciplined and diversified in a way consistent with their risk tolerances and investment goals. The bull market may have more legs, and upside surprises are possible, but risks have been rising over the past year or so, leading us to be more cautious and recommend that investors limit the risk in their portfolios.
Benefits of Rebalancing You May Not Be Considering
As most people know, I spend some time in the world of the media, whether it’s on the phone with print journalists or doing financial radio, financial media on television. And more often than not, they’re three-to-five minute segments, and it’s usually about current events, what’s going on in the market and the economy.
Schwab Market Perspective: Mixed Messages Sending a Clear Signal?
We believe there are three positives, three negatives and three wildcards for stock market performance in the fourth quarter. We expect the balance of these factors to result in further gains for global stocks.
Stocks Laboring to Move Higher
The U.S. equity bull market is intact, but recent action has not been fully-convincing, and we believe risks are rising, especially if we begin to see the same kind of frothy investor sentiment which accompanied the January highs. We continue to push the merits of tried-and-true disciplines like asset class diversification and rebalancing—the latter which forces investors to do what we all know we’re supposed to do, which is buy (or add) low and sell (or trim) high. As the old adage goes, “bulls make money, bears make money, but pigs get slaughtered.”
Eyes on the Horizon: What Could Cause the Next Crisis?
With the 10-year anniversary of the onset of the global financial crisis just weeks away, now is a good time to ask where the next global economic crisis might come from. To be clear: We’re not sounding any alarms here. We don’t think a crisis is imminent. But we do like to keep our eyes on the horizon.
Risks Bubbling Below the Surface?
The recent pickup in market volatility, some choppy action by U.S. stocks, and notable weakness in emerging market stocks have reinforced our belief that we may be at or near an inflection point in economic fundamentals and/or market character. We never suggest trying to time the market in the short-term, but do believe discipline around strategies like rebalancing and diversification is essential at this stage in the cycle. Risks are rising.
Second Hand News: Facing a Second Derivative Economic Inflection Point?
This report may end up being the first in an ongoing series. I think of it as a “look inside my notebook,” as it literally represents a synopsis of the recent notes I put together for our latest Asset Allocation Working Group meeting. These represent a number of budding risks for the economy with which the markets are grappling. There are offsetting positives of course, but let’s leave this report to a look at some of the possible negatives.
What Happened to the Summer Doldrums?
Rising trade tensions are making us a bit more cautious, although the economic and earnings fundamentals remain healthy, which could cushion some of the blow from a trade war. Stay invested, but don’t reach too far out the risk spectrum, be prepared for bouts of volatility, and remain patient, diversified and disciplined.
Just Noise or Something More?
The noise surrounding the stock market is getting louder, resulting in more violent moves in equities. Much of the sound and fury is best ignored by long-term investors, but there are growing risks to the bull market in the form of rising trade disputes and the possibility of a central bank mistake. For now, we believe the secular bull market is intact, but are growing more concerned and urge investors to remain disciplined and diversified.
Searching for Balance
Despite a recent modest pullback in U.S. stocks, and a sharper one in international markets—reflecting both trade worries and the recent strength in the U.S. dollar—we don’t believe it marks the beginning of a more severe correction. Risks of a prolonged trade dispute have risen but it’s too soon to declare war; while the possibility of a positive resolution that would likely be a tailwind for equities. For now, a healthy U.S. economy is an offset to those growing worries. Threats to the current bull market have risen, and they include this being a midterm election year—which have historically been accompanied by larger-than-average maximum drawdowns. We continue to espouse discipline and diversification; but for now it’s in the context of an ongoing bull market.
Debt Song: It’s Not a Pretty Tune
I spend a lot of time on the road speaking to our investors and advisors and one of the common questions I get during the Q&A sessions is, “What keeps you up at night?” Aside from having an 18-year old daughter—and being a chronic insomniac anyway—my reply usually centers around debt and the burden it has and will continue to place on our economy.
Rough Waters for Summer?
U.S. stocks have moved toward the top of the recent range but volatility is likely to rise at times during the summer as investors deal with various global geopolitical headwinds. Further strength in the U.S. dollar would likely exacerbate the volatility—particularly within emerging markets. But limited signs of pending recession risk—at least in the United States—should keep the path of least resistance for the stock market higher. That said, patience and discipline are more important than ever in the face of sometimes ominous-sounding headlines.
Navigating the New Environment
A more challenging investing environment requires a more disciplined and patient investing approach. The next few months could continue to be choppy, but a U.S. and/or global recession still appears a ways off, which should keep the bull market—here and globally—intact.
It’s Windy Out There
Headwinds for stocks have risen but tailwinds also exist, resulting in a more tumultuous environment. We believe there are enough positives to keep the bull market going but gains are likely to be slower in coming, volatility is likely to remain elevated and discipline to a long-term plan will be crucial. Avoid overreacting to the barrage of news and focus on the items that could change the actual fundamentals of the economy.