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On August 26, 2016 we published this post entitled, “5 Reasons we won’t have a Recession in the next 12 months.” One year later the reasoning behind this forecast has been proved correct! Markets have reached new highs and most economic indicators are showing continued strength. But of course, now we must look ahead to attempt to appropriately position investments for current conditions. It seems fitting to look to the same analysts whose projections were correct over the past year. This piece provides a look at factors used to gauge the possibility of a recession in the near future.

(link to article)

As I always remind clients, the only true investments have a long-term view. It makes sense to analyze current fundamentals to make small tweaks in portfolios, but the investment principals that have proved successful in the past do not require major revisions based on the current news.

(Our blog post from 8/26/2016 titled “5 Reasons we won’t have a Recession in the next 12 months.”) . . . Or at least, 5 reasons there seems to be a somewhat strong argument to be made that we might not have a recession in the next year based on what LPL Financial calls the Recession Watch Dashboard. This tool uses 5 indicators that, when considered collectively, have had a strong history of forecasting economic downturns.

EconomicCycle

You can follow this link to see the full report (RecessionWatch), but I’ll provide a brief summary of the main points. Based on the Five Forecasters listed below, LPL states in the report, “Our Recession Watch Dashboard is showing an overall low risk of recession starting within the next year.” If you take a look around Bend, OR you will likely come to the same conclusion! LPL believes these forecasters provide a comprehensive view of the odds of a recession starting within the next year. If they are correct, as they have often been in the past, continuing to maintain some exposure to growth oriented securities might make a lot of sense right now.

The following are the Five Forecasters:

  • Leading Economic Indicators
  • Market Breadth
  • Purchasing Managers’ Sentiment (PMI)
  • Treasury Yield Curve
  • Market Valuation

 

Sources: LPL Research, Federal Reserve, U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics, U.S. Bureau of the Census, Standard and Poor’s, Robert Shiller, National Bureau of Economic Research, Haver Analytics, Thomson Reuters 08/15/16

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for your clients. Any economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All indexes are un-managed and cannot be invested into directly.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.
NYSE Composite Index measures the performance of all stocks listed on the New York Stock Exchange. The NYSE Composite Index includes more than 1,900 stocks, of which over 1,500 are U.S. companies.

This research material has been prepared by LPL Financial.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial is not an affiliate of and makes no representation with respect to such entity.

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