We all know investing isn’t about the day-to-day swings of the market—it’s about long-term performance. Of course that doesn’t stop us from compulsively checking our news feeds throughout the day for the latest headlines.
As a financial advisor, you have the training to look past the hyperbolic headlines and focus on the information that may actually pertain to a given portfolio. However, imagine how your clients, who don’t have your training or expertise, feel reading that stocks “surged” one day only to find that they “plunged” the next.
With all the recent volatility, the belief that the market is in a tailspin and it’s time to pull out is widespread. Financial Times reports that investor expectations are softening not just in the United States, but also internationally. However, the belief that the stock market is no longer bearing any fruit just isn’t justified. To prove that’s the case, let’s take a look at how the stock market and the economy as a whole are actually fairing.
The Sky Is Not Falling
Current economic conditions are still fairly strong. GDP and earnings growth aren’t as hearty as they were in 2017 or the first half of 2018, but still solid. The China/U.S. trade war is closer to being resolved than just a few months ago. This should help investor confidence in global markets.
However, the biggest threat to the economy is arguably investor confidence itself. The act of spooked investors pulling their money out of equities could bring about the very thing they fear—a crash.
In the midst of all this doom and gloom, what’s important to remember—and to explain to your clients—is that all these possibilities are still hypothetical. Everyone has predictions, but no one can see into the future. There’s always somebody out there predicting something; it’s only when they’re right that self-proclaimed “gurus” play it up. More often than not, expert predictions are like one economist’s infamous 2011 forecast that the Dow would crash to 3,000 by 2013: pure speculation.
As a financial advisor, the main message to your clients right now should be for them to put away their crystal balls and look at how the market is actually doing right now. The most recent data available shows that investors can assuage their worries about the prospects of a recession.
Strong GDP Growth—GDP growth, although slowing, remained above 2 percent as of December 2018, though Q1 could see 0 percent growth as a result of the past and potentially future government shutdown. In any case, this important measure of economic health doesn’t indicate a contraction is occurring.
A Robust Job Market—December 2018 saw the most hiring in 10 months. Wages increased. The unemployment rate rose slightly from 3.7 percent to 3.9 percent, but only because 419,000 jobless Americans that weren’t accounted for in previous unemployment rates decided to seek work again. Together, these stats show the private sector, for its part, is seeing plenty of demand for its products and services and expects that to continue at least into the near future.