Awful Week…Broken Record
The Kim Kardashian wedding actually ended up being a nice reprieve from the horrible market news last week.
Markets were awful in the U.S. as well as abroad. Economic data was poor and policymakers have been counterproductive – globally. We think that the odds of a recession in Europe (specifically – the “Eurozone”) are higher than in the U.S. but odds on both have been raising and economic growth slowing.
If you are looking for some good news, rates are still at zero, the yield curve is positive, the U.S. Dollar is cheap, corporate balance sheets and profits are strong and all this panic will most likely result in some sort of policy action. Additionally, there was some decent news last week with the 4 week unemployment average declining and some “deal action” with major tech companies.
We STILL think the “+50% chance of recession” that is priced into the current market is way too high and that the U.S. economy can avoid recession…Is it possible to have a “crisis recession” rather than an “economic recession”? Maybe…
The markets were simply awful last week. The Dow Jones Industrial Average (DJIA) lost -4.01% to finish at 10,818, the S&P 500 Index lost -4.69% to finish at 1,124 and the Nasdaq Composite Index lost -6.62% to finish at 2,342. The Russell 2000 Index, which tracks the performance of small capitalization stocks, lost -6.57% to finish at 652.
The big problem is that the stock market may cause a “crisis recession”. The market plunges and signals that the odds of a recession are growing. Headlines create even more fear and that can translate into corporations behaving is if there is a recession even before one actually happens. They begin to reduce spending and lay workers off.
Poof – a recession…caused by fear and crisis all before GDP is even projected to be negative. And remember, we are seeing strong corporate earnings reports and increasing revenue right now. In fact, with reporting season just about over, the year over year growth of corporate earnings stands at about +18%.
+18% – not bad. But I guess that got lost in the news since they had to spend so much time covering the Kim Kardashian wedding.
So for right now we STILL think: Slowing growth yes, recession no.
Stay invested unless your need for short-term liquidity has changed. That should be the only reason an investor is selling right now. If you can’t sleep at night, your asset allocation does not accurately reflect your risk tolerance and you should call your advisor to update your long-term planning and allocations.
Call us for help or if you have any questions.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries, and widely held by individuals and institutional investors. The Standard & Poor’s 500 Stock Index (S&P 500) is an unmanaged capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. The Russell 2000 Small Stock Index is an unmanaged index generally representative of the 2000 smallest companies in the Russell 3000 Index. The Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.
David B. Armstrong, CFA
President & Co-Founder
Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....
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