There really is only one way to properly describe the present environment – Normal. Take into consideration some of what is going on around the world right now: international conflict (ISIS, Eastern Europe, South China Sea just to name a few), economic instability (Brexit, European Union, Japan, Emerging Markets), and political uncertainty (U.S. Presidential Election).
The one thing these all have in common is that they cause uncertainty, which in turn brings additional volatility to the investment markets here at home and around the world as well. It is also worth noting these types of issues have existed for several centuries, yet here we are. Which brings us to the main point – properly setting your goals, planning for them, implementing the recommendations and then monitoring them is how you navigate through the uncertainty. From an investment perspective, a popular quote by the great Benjamin Graham says, “The essence of portfolio management is the management of risks, not the management of returns. All good portfolio management begins and ends with this premise.” We could not agree more.
We are also heading into the historically negative market months of September to October. There is no certainty though that markets will decline this time. This past May the general consensus from most market gurus was to “sell in May and go away.” If you took that advice you would have missed the 100 point rise in the S&P 500 Index or nearly 5% gain for the four months.
On to the technical side of things. Consumer spending in the U.S. continues to improve with the last four months experiencing the highest increases since November of 2015. Additionally, personal income continues to rise while energy prices stay low – always a good thing. New home sales are also increasing and reached an eight year high this past July. Certainly, low mortgage rates help in that regard. Second quarter GDP for the U.S. increased at a rate of 1.1% with the third quarter of this year expected to be higher. With inflation staying low, consumer spending increasing and higher GDP it is quite possible we will see an interest rate hike from the Federal Reserve by year end. Additionally, if there is a strong jobs report this week, the probability of a rate hike this September increases even more so.
The U.S. economy has been quietly gaining strength over the last year and we may finally be moving on from an interest rate driven equity market to an earnings based equity market. Regardless, we are all aware of the fluctuations that can occur in the short run, especially those that may be media induced. Staying focused on your goals and your plan while mitigating risks is the best way to rise above short term noise.