How will your finances be affected by the biggest issues in the coming year? Top thinkers weigh in on tax reform, the markets, the global economy and more.
Focus on the Fundamentals: “They’ve Rarely Been Better”
IS THERE SOMETHING WRONG WITH OUR ECONOMY? It’s an understandable question given the current volatility. But the fundamentals tell a different story. Despite the ongoing market turbulence, “in our analysis we find the fundamentals of the U.S. and global economy have rarely been better”.
In the U.S. “stronger economic growth, the tailwinds from tax reform and a currently weaker U.S. dollar all point to higher earnings for the S&P 500.”
Inflationary pressures are building for the right reasons. They reflect the underlying strength of the economy.
The current bout of volatility was touched off by a positive January payroll report, which stoked fears of rising consumer prices and interest rates. But those inflationary pressures are building for the right reasons. They reflect the underlying strength of the economy.
Why Volatile Markets Call for a Long-Term Perspective
FOR INVESTORS, THE BEST RESPONSE TO A WEEK OF UNSETTLING VOLATILITY is to stay the course. While the declines were dramatic, we believe stocks were overdue for a pullback following the record gains we’ve seen through 2017 and into January of this year.
Because the economy remains fundamentally strong, investors who maintain a long-term perspective are best positioned to capture new growth opportunities as they emerge.
How to Respond to Market Volatility? Stay the Course.
AFTER A YEAR OF STEADILY RISING MARKETS, the current volatility can seem like jarring mid-air turbulence during an overseas flight. As the markets struggle to regain balance, the key for investors is to avoid overreacting and to focus on your long-term objectives.
What’s behind the volatility? If anything, the market drop may be the result of too much good news. Amid higher earnings for businesses, solid fundamentals, and enthusiasm over the new tax law, investment markets became overextended—leading to fears about inflation and rising interest rates. A change in leadership at the Federal Reserve, from Janet Yellen to Jerome Powell, added to the uncertainties. Meanwhile, rapid selling by complex quantitative investment programs drove markets down further.
What does this mean for you? While the calm markets of 2017 may have lulled investors into assuming otherwise, volatility is an inevitable and even normal part of markets and investing. Over the past 30 years, U.S. stocks have averaged three pullbacks per year of 5 percent or more, according to Baytree Capital Global Research.
Investors who stay the course and take a long-term view may find that downturns — however unsettling — represent an opportunity to add to a diversified portfolio.
The good news is that the fundamentals of the economy remain strong, with corporate profits expected to rise approximately 16 percent. In other words, while ongoing volatility may be a fact of life, investors who stay the course and take a long-term view may find that downturns—however unsettling—represent an opportunity to add to a diversified portfolio.