With the stock market at record highs, although stalled at the moment, investors must ask two questions: 1) What’s next, and 2) What do I do about it? The ever-sage Lewis J. Walker, a financial planning and investment strategist at Capital Insight Group in Peachtree Corners, Ga., has some good guidance here:
The 2008 recession officially ended in June 2009. Yet over seven years later, people still ask, “When we will get back to normal?” In the 2016 elections, both Donald Trump and Bernie Sanders focused on the “low-growth economy” and how to get America back to a robust growth pattern.
No doubt as you plan investment strategies for 2017 and beyond you remember two brutal bear markets, 2000-2002 following the dot.com implosion, and the 2007-2009 credit crunch debacle. Is the seven-year-plus market advance growing whiskers, getting long in the tooth? What’s the outlook?
Google “stock market crash in 2016” and several pages of dire warnings of declines up to 80% will pop up. Politico on Oct. 21 proclaimed “a Trump win will tank markets.” Change the Google crash search to 2017 and the same collapse scenarios pop up.
What is “normal” is that markets of all stripes go through cycles and “what if” scenarios must fit your unique profile concerning risk and reward. Nevertheless, speaking to a group of advisors focused on business owners and growth strategies at the Exit Planning Institute in Atlanta on Dec. 15, Professor Roger Tutterow, of the Econometric Center, Coles College of Business, at nearby Kennesaw State University, had an interesting perspective. He delivered a fairly upbeat assessment of overall economic conditions, along with the normal caveats.
For those who will say in June 2017, “we are eight years into an expansion, we must be due for a recession,” Tutterow notes that recessions are not based on a clock. From 1945 to 2009, the economy went through 11 cycles with the average contraction 11.1 months and the average expansion 58.4 months.
Looking at the U.S. stock market run-up after the Trump victory, the professor advised, “Don’t confuse the stock market with recession risk,” which he sees as a bit higher compared to two years ago. If we get a recession in 2017 or 2018, strategies should be in place that would allow you to buy stock during dips, or if retired, have sufficient reserves to preclude selling stocks at market lows.
One positive note: Manufacturing in America has been coming back even before Donald Trump decided to “make America great again.” Overseas manufacturers are seeing rising costs in previously cheap labor markets. America’s rule of law and political stability is attractive and potential tax reform will be a plus, in addition to lower shipping costs. The U.S. is a safe haven in a turbulent world.
As to the stock market, ITR Economics in mid-December opined that “the rate-of-change signature (upside market momentum) post-election, improved corporate profitability, and non-financial leading indicators heading higher. This suggests that positive market trends could continue for awhile. There is a risk that the market could become overvalued but at year-end the S&P 500 price/ earnings ratio suggests that the market is not yet overvalued and not yet treading on thin ice.”
The strong U.S. dollar poses risks. Some sectors of manufacturing and sales heavily dependent on exports or foreign earnings will be constrained. Oil prices could rise somewhat but moves to make America energy independent is attractive to many industries. A strong dollar does help to hold down inflation, which has been trending upward.
Rising interest rates will help savers, but interest rates across the board will remain will below long-term averages despite the potential for up to three quarter-point jumps in the Fed Funds rate.
In late December, pollsters at Rasmussen reported the highest level of optimism since the start of 2015, a growing sense of confidence among Americans. The post-election bounce showed up in Rasmussen’s Consumer Spending Monitor.
But the pollsters added, “Time will tell if a real change in attitude is here at last or this is just a temporary period of post-election holiday season cheer.” We need strong consumer spending support to offset any hit to trade given the strong dollar.
Tutterow sees economic growth as staying positive in 2017, but if the rate of expansion does not match optimistic hopes in the short run, some stock analysts may be disappointed. Tutterow expects job expansion to be positive in 2017, boosting consumer confidence.
Investors should not chase short-term market movements but pursue a strategy based on individual risk profiles, a policy that defines what your money must do to power your life and peace of mind, and diversification.