A lot went on with the market last week. Volatility came back strong on Friday after the manufacturing number came in at the lowest level in 21 months. Germany then reported a very low number and the Eurozone total was the worst it’s been in 6 years. The fears of a global slowdown have hit the market. What pushed the markets off on Friday into overdrive was not just a global slowdown to bad manufacturing numbers, but what happened is a lot of money flowed into our long-term treasuries and pushed our long-term 10-year treasury yield down and inverted the yield curve. The reason that it was put into hyper-drive on the sell-off is because that can typically lead to a recession. Every time that the yield curve is inverted there’s been a recession to follow. The trick is, how long does it usually take to come out? Sometimes it takes as long as 2 to 3 years for a recession to follow the yield curve change, so, it could lead to recession just not immediately. We did, however, see the 10-year treasury drop down to 2.45%. That’s not necessarily indicative of confidence and future growth. With that being said, maybe the fear is that the global slowdown is coming home. We follow this carefully because there’s $30 trillion in equity markets and $40 trillion in the bond market.
Interest rates are coming down which is good. With interest rates being lower, the housing market has the potential to really take off. The average rate of a 30-year fixed mortgage came down to about 4.34% in March. While that doesn’t sound like too much, that’s actually a big change from November’s rates that were around 5%. This reflected in a negative way by hurting home sales in December and January. Statistically speaking, $150 in savings per month that you would have saved if you had waited from November to this point in March for a loan. This drop in interest rates will really help the housing market. A decrease in interest rates means people will be putting more money in their pockets which can cause consumer confidence to go up. The consumer confidence leads to spending which goes back into the economy. Also, the numbers from February showed an 11.8% increase in existing home sales. The housing market was struggling but if we get some of it back, good domestic strength, it could counter the news and impact of the global slowdown.
As we always say, “there are no guarantees”, but even with all the news and market activity, most economists and the Federal Reserve are looking for a good year this year. The GDP growth was at around 3.1%. We kind of felt that because it’s been so low for a while. For this year, it could end up around 2.1% with the forecast for 2020 showing around 1.9%. It’s trucking along at a solid 2% despite all the “riff-raff” and the forecast for both this year and next year are still looking good. We look at a lot of research and analyze it, good and bad. It’s important for us to look at the forecast going forward and determine how we make our decisions on the investment side.
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
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