This time around on The Weekly Take, I'd like to share an interesting, but counter-intuitive trend that we are seeing.

 

There is a steady stream of economic data that gets released to help consumers, companies, and countries understand how the economy is working. Most of the time, good economic news like lower unemployment and stable inflation creates the conditions for markets to move higher. The thought being, that less unemployment means more people earning incomes and contributing to the economy. Stable inflation means that the value of money is more predictable, and investors like that. In essence, most of the time, good economic news = good market conditions.

 

At the moment, we are seeing some good economic news (lower unemployment; and stable, but still high, inflation) that is leading to the markets moving lower. Why is that? Our belief is that investors are waiting for the markets to drop, or to see a recession, and so this good economic news means that we actually haven’t made our way into a market downturn or economic slowdown. In essence, investors are children in the back seat on a long road trip asking “Are we there yet?” and the economy is their parents trips saying “We will get there when we get there”. Unlike the children in our family road trip analogy, investors do have some impact. Investors are looking for the market bottom and a economic slowdown, and each time they don’t see the signs they are looking for, they pump the brakes and slow down their buying of stocks and bonds – driving prices lower.

 

What are some of the signs of a market downturn or economic slowdown? Stock prices falling across the board (not yet). Companies missing earnings estimates (to some extent). Companies reducing their workforces (mostly happening in the tech space, bot not widespread). Inflation falling (very slowly at the moment). Unemployment rising (not right now).

 

From the perspective of an individual, none of these “signs of a bottom” are particularly positive, but from a market perspective, once we do see the signs, it will be a positive experience going forward.

 

What does this mean to me? Should I get out of the market? Should I buy more?

 

The short answer is the same as always with our team: stay calm, sit tight. It can be challenging to see distressing headlines, but our clients have gone through this before and have seen that a calm approach to the markets is the best approach for their investments, and for their mental health. Understanding why things are happening is in important part of taking the fear out of your reaction, but we don't need to make drastic changes. Our portfolios are designed to handle these types of changes.

 

If you're worried, or want to learn more, we would love to chat with you. Feel free to connect with us here.

 

Cheers,

 

Pete