Perspective from CIO Brian Andrew – Stay calm and carry on amid the complexity
By Karla Krehbiel, Regional President, Johnson Financial Group
Recently, our Chief Investment Officer, Brian Andrew, shared his perspective on what's happening in the markets during an economic update. His advice for us all? Remain calm and seek clarity amidst the volatility that is returning to the markets.
After a very quiet 2017, market swings of 400+ points are the new norm. However, Brian encourages us to understand the reasons behind market swings and apply them to financial planning strategies for long‐term success.
Recent volatility can be attributed largely to “policy handoff.” After the 2008 financial crisis, the Federal Reserve and central banks across the globe joined together to support stimulus and maintain low interest rates in an effort to keep markets afloat – a strategy lasting nearly a decade. Now, the outlook for declining balance sheets globally has caused central banks to slowly start raising rates. Politicians, on the other hand, disrupt the financial environment almost immediately via comments, written statements and social media – sometimes spurring market drops of four to five percent.
This turbulent environment contributes to market swings and investor worry. But, keep in mind – stock price swings alone do not mean a particular company has declined in growth or earnings. It's important to look at the big picture, knowing that sometimes politics – not business – plays a key role in driving stock prices and short‐term market disruption.
According to Brian, here are a few things to keep in mind when considering how to use market volatility to your advantage:
Don't fear volatility. Stick to your overall financial strategy, and consider other factors in in the current financial environment:
Inflation and economic growth: Growth has improved and is likely to continue, although slow and steady.
Unemployment: The U.S. unemployment rate is 4.1% and likely to drop to between three and four percent for the first time in decades. But the employment participation rate is only about 60% due to skill gaps and those dropping out of the hiring market.
Company Investments: Companies will invest in technology rather than hiring to fuel growth, causing job growth to lag. Baby Boomers are also retiring at top wages and being replaced by a younger workforce.
Growth: Annual economic growth currently is about two percent and will likely increase to three percent – a significant improvement (although in contrast to the four‐to‐five percent annual growth people remember from years past).
Inflation: Inflation – and prices – will rise as the economy improves, but it will be slow.
The current economic environment marked by lower energy prices, growing ecommerce, slow wage growth and a slow rise in inflation is very positive overall, and can even benefit bond yields.
Despite recent market swings related to tariffs and trade policy, the overall U.S. economic outlook for 2018 is strong, bolstered by a global competitive advantage, especially concerning China, which accounted for about half of our total trade deficit of $707 billion in 2017. Additionally, U.S. business investment is expected to increase as much as ten percent in 2018 over the total $2.5 trillion in 2017.
Market swings, sometimes driven by politicians who grab headlines, allow savvy investors to take advantage of lower stock prices in the midst of turbulence.
Although there are many ways to make money on your investments, it can be difficult to make decisions during periods of complexity and market turbulence. Talking to an experienced financial advisor can help provide the knowledge you need to carry on and ensure your financial strategy stays on track toward your desired goals.
If you're interested in hearing Brian's full presentation, click on the video below. If you would like to receive Brian's weekly commentary, sign up through our subscriptions.