Can Positivity Cause Risk?
Some people like to say that the market “climbs a wall of worry.” Risk comes when people become too positive. We have hit all-time highs on purchasing manager’s index, consumer confidence and NFIB small business optimism. These are positive but it’s possible to have too much of a good thing. This could cause a risk that the Fed might come in and put a halt on the party, so to speak. Interest rates are increasing which causes bond rates to go up and could potentially hurt fixed income portfolios. One of the things we see in planning and help our clients with is that people are trying to decide between refinancing their homes ahead of interest rates going up or to pay off mortgages.
One major reason you will see China in the media this week is because our timing to negotiate with them right now is good. The Chinese economy is growing at a 5.3% rate. Since that data has first started being collected 25 years ago, they’ve never seen a growth rate this slow. The issue right now is that they don’t have a lot of operating room to go toe-to-toe with the U.S. We are a larger market which essentially means they need us more than we need them.
A major part of the previous tax reform was repatriation of foreign dollars that companies made outside of the U.S. and brought back. The U.S. Department of Commerce projected that we would get back about $2.7 trillion in cash. That number has been around $143 billion which is still a good number. All economic growth has really been at the core, however, there could be a second phase of this. Companies spending that level of money will likely be part of a planned strategy rather than instantaneously. They might purchase a piece of equipment here and there but typically will have a major strategic plan in place. September through December is historically known to be the strategic planning season and could extend the spending and planning within these companies.
Storms and The Market
Our thoughts and prayers are with those that have been affected by the storms. Millions of people were in the path of Hurricane Florence. Historically, with natural disasters there’s a temporary slowdown in the market. As people start to rebuild it can boost economic activity. We can see restocking, construction, and car purchases drive economic activity right after a storm. Regarding the market, the S&P 500 is historically down two tenths of a percent in the month right after a major storm but up 3.9% three months later.
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.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.
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