By: David Smyth, August 30, 2019
This might make you panic a little and think we actually are going into a recession, but let me pose a question: What if all this inversion in the US bond markets is happening simply because the US is seen as a good place for investors to go? Have you ever considered that while all of this is going on, corporate earnings and consumer spending in general are very strong?
In June banks passed their annual stress tests, and immediately embarked on stock buybacks and repurchasing, in addition to increasing dividend payments to shareholders. On the retail side, we saw earnings reports from retail giants like Wal Mart and Target that topped Wall Street's expectations, leading them to raise their full-year estimates.
This all leads me to ask, where is this recession talk coming from? The majority of recessions are consumer driven, but if our lending institutions and consumers are healthy, what's making people so fearful of a recession? If you can figure that out, please let me know, because I sure can't.
Something else worth considering is that, with the 30-year Treasury yield hitting an all-time low, an institutional rebalancing is likely taking place. Due to the recent rally in the fixed-income markets, large institutions such as pensions are currently rebalancing into equities from bonds to preserve their allocations. These flows may have a positive short-term impact on equities.
I know in times like this as we've been in a massive trading range for the last 18 months or so, if you come in for your quarterly meeting when the markets are up, you feel optimistic and you feel like your financial plan is on track. If the markets are in the low range when you come in, you probably feel a little pessimistic and might ask us to make sure your plan is still working for you.
After more than two decades in this business, trust me when I tell you that I understand all of these emotions. But at the same time, I do want you to know that your financial plans are designed to help navigate market ups and downs.
Can this volatility cause stress? Absolutely. But these aren't fatal blows being dealt. The apple cart is still upright. I think it's fair to reiterate what I've been saying since 2015: This market where machines are in control is here to stay , and these kinds of swings are a part of the new way of investing.
Now you're probably saying, "Ok Dave, I hear you, but that doesn't make me feel any better. I don't like volatility." My answer to that is, cool. I hear you. Don't wait for your next quarterly meeting. Give us a call, come into the office and let's adjust the risk factor in your portfolio.
On the other hand, if you say yeah, I'm tired of China and Trump and inverted yield curves, but I know I'll feel better and more comfortable when the markets do swing back up. If you can envision a market that does follow the growth of banks and consumer spending, then there might be some good buying opportunities for you right now.
No matter what, we're here for you, and we're willing to talk about any of your fears and discuss any opportunities. We welcome the conversation.