On 8/26/2016 we posted this article on why a recession was unlikely over the next 12 months. One year later, the markets have hit new highs and most of the leading indicators are showing continued strength. This is obvious good news not just because we got it right. But, of course, we always need to be looking ahead when we’re positioning client portfolios. It seems appropriate to go to the same source that gave us the accurate projections a year ago, so I’ve included this link (Recession Watch ) to their latest piece which tracks the factors that indicate where the economy stands in regards to the next recession.
Evaluating current fundamental factors that affect the economy are valuable, but it’s also important to keep in mind that true investing is a long-term undertaking. One year represents a very short period when attempting to plan for lifetime income during retirement or saving for college for a child in elementary school, etc.. This is why our investment services always begin with financial planning. It’s a focus on the client’s circumstances, not on the myriad of circumstances that might affect the ups and downs in the day to day stock market.
(Our blog post from 8/26/2017 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.
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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