The question of the day seems to be “Is a recession coming?” We’ve had similar long running expansions in the 1960s, 1980s and 1990s. Recessions followed these expansions. Is this time any different? Looking at Google Trends, searches containing the word recession are up 61% over the last six months. Have the changes in monetary and fiscal policy reduced the likelihood that a recession will actually happen? One thing that we know for sure is that analysts and short term traders have increased their focus on the economy and this has created more volatility in the market.
Stock market volatility, the steep corrections, an inverted yield curve and trade talks have contributed to worries about an economic downturn. The current economic expansion has celebrated its ten year anniversary and it just keeps going, slow and steady. It has become the longest on record, including the expansion of the 1990s, which lasted ten years.
Recessions are a normal part of the business cycle in a free market economy. Unfortunately, expansions do not simply fade out. Expansions end when economic and financial imbalances arise, such as a stock or housing bubble, rising unemployment or the Fed aggressively hiking rates.
In the third quarter of 2018 the Fed cut its forecast to two rate
increases at the December meeting amid stock market uncertainty
and signs U.S. growth was moderating. At the conclusion of the
March 2019 meeting, the Fed will have no rate hikes this year.
Recently, rates were reduced because of fear of what might happen
with the trade war. Most likely, if it wasn't for the trade war, this
market would likely be performing even better. I believe this market is long in the tooth but I also believe it still has more room to run. That being said, I expect the volatility to continue.
There is still much to be optimistic about. We have low unemployment, low inflation, low interest rates, stock market highs, an economy that is still moving forward and the biggest companies in the U.S. continuing to exceed their earnings expectations.
The recession will surely come some time down the road. Even so, let's not take our eyes off the ball, or listen to the media and other nay-sayers about how bad it is and how soon the next recession will be here. Keep investing, spending within your means, living life and focus on the long term.
You may be wondering if Webb Financial Group is preparing for what is currently happening or what is eventually coming. WFG has lowered the risk in client accounts three times over the last 18 months in these ways:
1) Adding more conservative bond exposure
2) Decreasing growth stocks
3) Increasing the percentage invested in more stable dividend companies
4) Decreasing the percentage in more volatile small cap stocks
5) Decreasing international risk
6) Continuing to rebalance portfolios to keep any over-exposure contained
We have added a software to help us better address risk for each client. It is used to accomplish the same return goal while taking on less risk. It’s a great risk analysis method.
Thank you so much for the trust you continue to place in Webb Financial Group. If you need anything or have questions, please reach out to your advisor or any member of our team.