Wow, what a difference a year makes. Last year at this time, there was a fear that the economy was overheating and in need of continued interest rate hikes from the Federal Reserve. The 10-year U.S. Treasury note had just hit 3.25% and the service sector strength as measured by the ISM (Institute for Supply Management) measured its highest read in history.
Fast forward one year, and here we sit with the 10-year note sitting at 1.54% and growing fears of a recession. With a yield curve inversion, a trade war with China and other countries, and overall investor exhaustion from the daily deluge of news that moves markets some days and falls on deaf ears on others, it’s pretty remarkable that the market has maintained these levels.
We’re seeing the infamous “it’s the economy, stupid” line from James Carville play out once again. Despite the negative sentiment, the market has showed resilience because it has good things going for it.
▪ Robust consumer spending
▪ Strong housing market
▪ Record low unemployment
▪ Healthy retail spending
▪ Low tax rates
Economic data aside, elections can affect markets. I wouldn’t dare prognosticate on what’s to come over the next thirteen months leading up to the 2020 election. However, I heard someone on a financial news network coin a term for 2020 as the “buckle up market”, insinuating that it may be turbulent but less for economic reasons than for political reasons.
How do you handle turbulence? On a plane, I know what I do. First, I buckle up and prepare my mind for the bumps. Then, I remind myself of the training flight simulation requirements and the hours of training pilots go through to learn how to fly through turbulence. Next, I remember that qualified mechanical engineers have spent thousands of hours assembling and testing every plane in the sky. Finally, I just keep my cool and avoid panic when the rough ride commences.
You can handle market volatility in much the same way:
▪ Buckle up
▪ Prepare your mind for it
▪ Have faith in your pilot
▪ Remember that markets have passed these tests before
▪ Keep your cool and avoid panicking
I hope it’s smooth sailing ahead, but if it’s not, we are here to field any questions you have about the economy and how your investments are positioned.