Friday, the market traded down because news came out that the negotiations on the U.S. and China tariffs talks were cut short and the market reacted to that. The Chinese decided not to visit a farm in Montana and instead decided to head back home. How many times have you been on a business trip and you decided on cutting it short to catch a flight or leave early to be where you’re supposed to be? The market took the Chinese leaving early as a sign that they weren’t happy and that talks ended poorly. We’re in a kind of market that will give knee-jerk reactions to any news that hits like that. The Fed being wishy-washy lately has been a market mover as well. They are making rates go up one year and rates come down the next year. All of this is causing a lot of emotion and market volatility.
The focus last week was the interest rate cut by the Fed. What we want to highlight is that in addition to that, on Friday, the Federal Reserve provided a lot more liquidity that can go into the markets. Europe can’t do that. We’ve got the ability to provide liquidity in our market very quickly and did so. When that happens, it’s good for banks because they can lend more. So, if companies are looking at buying a large piece of equipment, banks can be a little bit more liberal in what they do. You can’t just look at the interest rate cuts alone. There are other mechanisms on their balance sheet to consider. On the consumer confidence side, we were a little bit shaky in August and we’ve always said that’s historically a short volatile month, but the consumer confidence has roared back. If you compare where stocks are and where treasury yields are, along with the fact that recession indicators have really dropped, it shows that the consumer confidence is back. You have some issues and volatility around trade but they’re manageable.
The Savings Rate
The structure of when the savings rate goes up has really changed. It used to be, back in the day, when you came out of the back of a recession, your savings would start to go up because people are a little bit fearful. They would be trying to restore their own balance sheet to get through it. Over the last 10 years, there has been an unusual expansion. Usually when you have an expansion people get comfortable and they start spending again and the saving rate is small. Our savings rate this past year has been around 8.2% and that’s been unprecedented. Once we eventually hit the next small recession, whenever that is, the savings rate being higher now should provide a way to be able to play through that situation better because people have more to spend.
A Positive Future
Right now, as you look at the stock market, there are no guarantees. However, we are seeing the markets building a base. We may see a rally take place that could take us to higher highs, if earnings continue to come out positive. We’re seeing companies, with interest rates down, probably looking at mergers and acquisitions along with certain debt financing. The housing market is still looking positive. If you tie all that together in relation to your financial blueprint, if you’re one of our clients, you want the plan in place to tie into the strategies in the portfolio and then proactively manage it to make sure you don’t take on too much risk if things continue to be volatile. Don’t get emotional in the volatility of this market if there’s debate about if the Fed is going to lower rates or not and if China and the U.S. are ever going to solve the tariff issue. These two things shall pass eventually and knowing that corporate earnings are good, consumer confidence is up, people are saving money, and innovation and technology continues to move forward, there are a lot of positives going on.
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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