Optimism Despite a Bumpy Start
Stock Market News
Optimism Despite a Bumpy Start
“The only thing we have to fear is fear itself.” These are words that might reflect many investors’ opinions at the beginning of the year, when we saw a stock market sell-off that sent the Dow plummeting and oil prices hit below $27 per barrel for the first time since 2003. The roller-coaster ride on Wall Street mirrored stock market performances worldwide as European exchanges tanked, Japanese stocks declined, and China’s slowdown cast shadows worldwide. By the end of the month, despite continuing dips and dives on the exchanges, investment experts were pointing to positive indicators and urging investors to avoid knee-jerk reactions. Here’s an overview of key talking points and current opinions.
- No return to recession. The U.S. economy does not operate in isolation from the rest of the world. However, that doesn’t mean China’s misfortunes will drag the United States back into a recession. China’s major market dive occurred last summer and the majority of the impact of that development already has been absorbed into U.S. stock prices. Many investment experts urge investors to recognize the positive economic drivers that are currently at play in the United States – including cheaper oil and low interest rates. Federal Reserve Chairwoman Janet Yellen has noted that the Fed doesn’t believe another recession is on the horizon, citing strong job growth and healthy economic expansion as significant factors. Surveys indicate that companies are planning to raise workers’ wages this year, providing consumers with further encouragement to keep spending. Bottom line: the stock market rarely leads the economy into a recession – tanking economic factors usually are the catalyst.
- Will the positive outlook for consumer spending and wage hikes keep the economy growing? Some experts have been quick to tie the U.S. markets’ decline to the dip in oil prices, which have fallen significantly (almost one-fourth of what they were only six months ago). While it is true that energy company stocks are down and oil industry workers have been let go, cheaper energy and heating costs means consumers have more to spend. Lower gasoline and heating oil costs also mean that companies are seeing lower operating costs, which translate into more hiring and/or higher wages. Optimists believe these changes outweigh the downward spiral in the oil sector. Yet conflicting views abound. Some analysts believe that because the United States has shifted from a net consuming nation to a major producer of oil, that lower prices will have a greater impact on the markets than they have had historically.
- Is a Bear Market on the horizon? Any time there is growing volatility in the stock market, pessimists start to predict the current bull market’s demise. The reality is that by May 2016, this bull market will be the second-longest in history. While that doesn’t automatically mean we are overdue for a bear market, it should prepare investors to expect some volatility ahead. In such a climate, investment advisors often counsel risk-adverse clients to stick with the tried and true – companies that offer a solid long-term track record and reward patient investors.
The above is general commentary only and is not intended to replace the professional advice of tax and investment advisors.
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