On July 24, 2019, yours truly departed for a month long sojourn Down Under, in Australia. On the day I departed, the S&P 500 index closed at 3019.55. On the first trading day after my return, August 26, the index closed at 2878.38, down -4.6 percent for the period, given a turbulent August. Nevertheless, as of Aug. 26, the S&P 500 is up +15.1 percent for the year, a respectable performance. The Dow Jones Industrial Average shows much the same pattern, down 5.0 percent July 24 to Aug. 26, but up 16.8 percent for the year.
While traveling, I devour local newspapers looking for trends outside of the American bubble. Australia long has been a close ally of America, from WW I, WW II, Vietnam and today in the Strait of Hormuz. Australian pundits keep a close eye on the American economy, the strength of the U.S. dollar versus the Australian dollar, global, interest rates and U.S. politics, including relations between central bankers and world leaders, especially President Trump’s dealings with China, Russia, Iran, et al. The same forces that impact interest rates, central bank policies, tariff wars and stock market values here also buffet traders and investors down under.
Much of the current volatility in U.S. markets is attributed to presidential tweet storms and tariff jitters as global growth slows. What’s happening in U.S. markets is normal volatility, within ranges that should be expected by investors. What is lost on many politicians and elites is how all these machinations translate into bread-and-butter issues for workers in the heartland and elsewhere, whether a miner, oil worker or sheep farmer in Western or South Australia, New South Wales or Victoria, or an auto or steel worker in Ohio, Michigan, Pennsylvania, the South, or a farmer or fisherman in food production regions across our fruited plain.
Despite the fact that pundits cite those who don’t own stocks as not having a dog in the fights that bounce around bond and stock markets, they do. Low interest rates depress yields on savings for those that save for a rainy day or to just have emergency reserves. Low interest rates make lenders less likely to lend. Those who don’t own securities directly, often have an interest in market performance over time, given participation in public and private pension plans, certain life insurance policies and annuities. Many who don’t own individual stocks own mutual funds personally and in qualified retirement plans, college savings plans, etc. Torpedo stock values and everyone suffers.
Both Aussie and American papers ask, “Is a recession looming?” A recession technically is a slow economic period where the gross domestic product declines and unemployment increases for two or more quarters. A correction in the market is a drop of 10 percent from a previous high; a bear market move, down 20 percent or more from a previous high. Is that likely near term? While opinions are all over the map, no one really knows. Some pundits are actually cheering for a recession that might imperil Mr. Trump’s reelection odds.
The bottom line is that if you have a stock portfolio of any kind, and you may need to cash out stocks near term to finance living expenses, you should have a reasonable defensive cushion in place at all times, especially if you are retired and dependent on a stock portfolio for a paycheck or “playcheck.” If you have a rainy day fund in good order, and you have quality stocks with good dividend yields, you can stand pat, depending on your risk tolerance and time frames.
You will continue to see worrisome headlines. For example, does insider selling or an inverted yield curve signal a recession? What will the Federal Reserve Bank do? How will all of this impact the dollar? These are normal speculations, and if you have a solid financial and investment plan in place, you should follow headlines with interest, but not let the daily yin and yang drive you nuts!
Perhaps one of your goals should be the option to travel halfway around the globe for a few weeks or a month and not worry about this crazy world. In remote areas of Australia like the Outback or the Kimberley, you can’t get a Twitter feed or internet signal. What a blessing!
Lewis Walker, CFP®, is a financial life planning strategist at Capital Insight Group; 770-441-3553;email@example.com. Securities & advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis is a registered representative and investment adviser representative of SFA, otherwise unaffiliated with Capital Insight Group. He’s a Gallup Certified Clifton Strengths Coach and Certified Exit Planning Advisor.