Almost half way through 2019, we have celebrated Women’s History Month (March) and Earth Day (April 22). According to www.WomensHistoryMonth.gov, we celebrate and recognize “the great contributions that women have made to our nation.” According to www.History.com, Earth Day is an annual event where various events worldwide are held to demonstrate support for environmental protection. Society teaches us to value those we commemorate. We honor the fruits of women’s accomplishments and the essential protection of Earth’s life sustaining qualities.
Appreciating historical context leads to better understandings. Whileyou may wish to seek tangible ways to protect and preserve the Earth’s environment, or to learn more about women’s historical contributions, your noble intentions may become absorbed by life.
I suggest learning how to protect your hard earned, investable assets is equally important. We can all agree that the lack of knowledge may lead to making poor investment decisions. Information helps guide you to develop your own practical investment process in which you understand and appreciate the varying dynamics and possible outcomes. You will be able to derive your own opinion on the economy, investment opportunities, and what you think is an appropriate manner to proceed.
I believe having applicable insight will better enable you to make smart decisions with your money, thus creating a lifetime of financial confidence. I believe this is vital as you will find cogent arguments for strategies recommended to you. It is your responsibility to fully appreciate the pros and cons of each and work through them to decide which is best suited to you.
Many news outlets, as well as market strategists, discuss the yield curve. They also reference the inverted yield curve. The yield curve is the difference between the interest rates on the shorter term United States government bonds and longer term United States government bonds.
Typically, in a healthy economy, the rates of long-term bonds will be higher than on short-term bonds. The extra yield (interest) is to compensate for the likely risk that economic growth will have due to an increase in prices (inflation).
New York Federal Reserve President John Williams said the yield curve inversion is “a powerful sign of recessions.” According to research from the Federal Reserve Bank of San Francisco, every recession of the past 60 years has been preceded by an inverted yield curve.
A resource I have used for yield curve data is from the Federal Reserve Bank of St. Louis (https://fred.stlouisfed.org/graph/fredgraph.png?g=mMGv). Per its title, this resource will chart the “10-year Treasury Constant Maturity Minus 2-year Treasury Constant Maturity” as of February 7, 2019.
(Shaded areas represent U.S. recessions; Source Federal Reserve Bank of St. Louis)
You also may read or listen to various news outlets debating whether the United States economy is currently in, or will be entering, a recession. I believe this may be missing the most important point. Going back to World War II, LPL Financial Research found that there have been 14 bear markets, with seven taking place during a recessionand seven without an accompanying recession.
Current events can also impact your investment portfolio. I believe your investment strategy may need to account for them due to market and political implications. These range from increased trade risks, potential future government shutdowns, troubling headlines on geopolitical issues, global growth slowdowns, etc. Some examples to keep in mind may be:
- The recent, record setting 35-day government shutdown, which temporarily funded governmental operations until February 15, 2019.
- Thursday February 7th, 2019, President Trump indicated he does not plan to meet Chinese president Xi Jinping ahead of the March 1 trade deadline.
- The United Kingdom’s scheduled exit from the European Union, Brexit.
- The European Commission cut its GDP growth forecast for 2019 from 1.9% to 1.3%, warning that Brexit and China may worsen the outlook. Italy’s revision was the most negative, from 1.2% to 0.2%. The latest data told the same story, as industrial production in Germany contracted in December by 0.4%, versus expectations for 0.8% growth, suggesting the country may have entered a technical recession in the fourth quarter. In addition, the Bank of England cut its U.K. economic growth forecast for 2019 from 1.7% to 1.2% and noted that Brexit risk had risen. Finally, Europe’s economic surprise indexes have lagged far behind those in the U.S., Japan and China in recent months.
- St. Louis Federal Reserve President James Bullard, a Fed voting member, said in a speech on February 7, 2019 that the Fed must “tread carefully” in future policy changes, and noted that he views inflation-adjusted rates as “a little bit restrictive” at this point.
I hope this article gives you a good start toward building your knowledge base focusing on preserving your hard earned resources. I believe that when one has a voice, options, information and a community in which to learn, they are able to make smart decisions with their money, thus creating a lifetime of financial confidence.
James C. Knapp, AIF®
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC
Authors note: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The Standard & Poor’s 500 (S&P 500) is an index of 500 stocks seen as a leading indicator of U.S. equities and a reflection of the performance of the large cap universe, made up of companies selected by economists.
The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed rate taxable fixed income.