By Barbara Magor Deel
Most economists agree that the recent drop in U.S. stocks so far in 2016 of approximately 7 percent is out of proportion to changes in the broader U.S. economy, which in general is actually getting better, not worse. Yet markets seem not to care. There have been brief respites from selling, yet traders keep fixating on global problems in China and elsewhere, not on U.S. economic fundamentals. Weakness in China has generated concern about how our products will be manufactured and sold with our more expensive dollar fare now with weakened economies overseas. Crude oil prices have fallen by about 11 percent since the Fed met in December. These worries breed more concern as if there are more unknown unknowns lurking somewhere that will cause losses. And fear of losses usually pushes down the value of riskier assets in favor of cash and treasury bonds.
The selloff will end when investors feel prices have fallen by enough to account for whatever bad news might still be out there waiting to be announced. Even what would normally be a good thing for consumers -- cheaper oil prices -- should mean good news for retail with additional cash leftover in normally strapped wallets -- is seen as a sign of “what else could go wrong.”
The fact is that when you look for bad news in a panic, there’s always something to find. That same spirited behavior, however, may soon trigger buying when prices get low enough and opportunistic investors smell a bargain. This bargain hunting will certainly happen at some point amidst the confusion and lack of understanding of the Chinese economy, the interplay of foreign currencies, and what seems to be some ignoring of our own stable U.S. economy. In fact, the wild swings in stocks are masking the strong fundamentals in the U.S. economy, which is certainly not on the brink of recession. In fact the median projection for growth among consensus economists in GDP this year was 2.4 percent while core inflation excluding food and energy was expected to reach 1.6 percent and our unemployment declining to 4.7 percent.
The markets have done the work of approximately four rate hikes according to Morgan Stanley’s chief economist. If this is true, the odds are stacked against further rate hikes for the near future. What better time to review your own portfolio’s characteristics and its asset allocation. The percentages in each sector have certainly shifted this month and any target prices in stocks whether bottom or top may necessitate some attention to weighting.
Call your trusted certified financial planner to schedule your portfolio review or email me at Barbara@americaninvestmentplanners.com with any questions.
Barbara Magor Deel is a certified financial planner and a chartered financial consultant with EFS Generation Income Planning in La Vernia.