Can Your Portfolio Weather an Economic Storm?
Let’s talk a little about famous last words. On Nov. 8, 2007, then-Federal Reserve Chairman Ben Bernanke told lawmakers that the U.S. economy did not appear headed for recession. One month later, the Great Recession of the 21st century began.1
So, on Sept. 6 of this year, when Fed Chair Jerome Powell announced that he didn’t “at all” expect the U.S. to enter a recession, it makes you wonder.2 The reality is that even the most experienced economists don’t always make accurate predictions.
Economic growth rises and declines just like market volatility, inflation and interest rates. It’s difficult for anyone to predict these things with any accuracy because the economy is cyclical and moves on its own time-frame. The ups drive growth, and the downs spur companies and the government to make effective decisions that will eventually drive up growth again.
When it comes to investment planning, you should plan on ups and downs. It can keep you up at night if your portfolio is reliant on day-to-day market moves and economic cycles. If you have long-term goals, it’s best to align your investment allocation to help you reach those goals and try not to worry too much about temporary declines.
That said, if you’re concerned that your financial strategy or investment portfolio might be vulnerable to a possible economic recession, talk to us. We have some ideas to help you weather the storm.
And speaking of a possible economic storm, it’s a lot like watching predictions of those named weather events that form in the Atlantic Ocean. One day it’s a tropical storm, the next day it’s a hurricane — it’s fast moving; then it’s stalled. There’s just no predicting its next move. But we can pick up on the signals, much as we watch for signs of a recession. And lately, there have been a few.
For example, the Trump administration’s ongoing trade war with China is causing problems for U.S. manufacturers, farmers and even consumers. Moody’s Analytics reports that the U.S. has lost approximately 300,000 jobs and 0.3% in GDP since the trade war began. If trade escalations continue, the firm predicts the nation could lose up to 800,000 jobs and the economy could plunge into a recession.3
The economic effects don’t end there. Because China and the U.S. are the world’s top two economies, the trade war is affecting other countries, as well. The Organisation for Economic Co-operation and Development (OECD) reduced this year’s forecast for global growth from 3.2% to 2.9%. The U.S. economy is expected to grow by only 2.4% in 2019, compared to 2.9% last year. Next year, it’s predicted to drop to 2.0%.4
We’ve also seen a recent drop in CEO confidence, meaning they are less likely to invest in expansion, and fewer jobs may be on the horizon.5 Another possible indication is that ultra-high-net-worth investors have been transitioning parts of their investment portfolios into private ventures, alternative investments and cash in anticipation of a recession in 2020.6
1 Mark Felsenthal. Reuters. Nov. 8, 2007. “Economy faces risks, not recession: Bernanke.” https://www.reuters.com/article/us-usa-bernanke/economy-faces-risks-not-recession-bernanke-idUSWBT00789120071108. Accessed Sept. 25, 2019.
2 Paul Davidson. USA Today. Sept. 9, 2019. “Powell: Fed is not ‘at all’ expecting a recession, saying economy continues to ‘perform well.’” https://www.usatoday.com/story/money/2019/09/06/fed-chair-jerome-powell-no-recession-expected-at-all-u-s/2232221001/. Accessed Sept. 25, 2019.
3 Shane Croucher. Newsweek. Sept. 11, 2019. “If Donald Trump’s China Trade War Escalates, the US Could Lose 800,000 Jobs and Plunge into a Deep Recession: Economists.” https://www.newsweek.com/trump-trade-war-escalates-jobs-deep-recession-moodys-1458706. Accessed Sept. 25, 2019.
4 Antonio Rodriguez and Richard Lein. International Business Times. Sept. 19, 2019. “Trade Tensions Slam Brakes On Global Economy: OECD.” https://www.ibtimes.com/trade-tensions-slam-brakes-global-economy-oecd-2829329. Accessed Sept. 25, 2019.
5 Business Roundtable. 2019. “Business Roundtable CEO Economic Outlook Index Decreases in Q3.” https://www.businessroundtable.org/media/ceo-economic-outlook-index/ceo-economic-outlook-index-q3-2019. Accessed Oct. 10, 2019.
6 Suzanne Woolley and Benjamin Stupples. Bloomberg. Sept. 23, 2019. “The World’s Wealthiest Families Are Stockpiling Cash as Recession Fears Grow.” https://www.bloomberg.com/news/articles/2019-09-23/world-s-wealthiest-families-stockpiling-cash-on-recession-fears. Accessed Sept. 25, 2019.
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