It seems the economy is not as strong as we thought. At the beginning of the year, President Obama explained the economy was strong. He based his statements on the job growth he has garnered throughout his time in office as well as comparing the state of the economy now compared to 2008. Is he correct?
The Market Tells A Different Story
The beginning of the year saw the lowest drop in the Dow Jones Industrial Average since 1897. This 400 point drop saw a slight rebound the week afterwards. Meanwhile, the S&P 500 went down about 11% since mid Q2 of 2015.
Of course, the market does not always follow the state of the economy. There are many factors that contribute to both sectors however, there are correlations between their respective states. Currently, there seems to be no correlation between job growth and the state of the market.
Let’s Compare This Year and Last
Looking at the trends, there is little difference in the market between now and this time last year. Since Q1 of 2015, stocks have been moving upward and falling down just as fast. Due to this, we are in the same place we were. Luckily, these projections do not account for the liquid assets that can potentially fuel a market advancement in the near future.
If you are an investor, the first thing to understand is the long-term appreciation of your investments. Although it is possible to become rich overnight, it is far more likely to take 30 years. Based on this, there is a silver lining that is ever-increasing in its glow.
What Has Shaped The Current Economy?
There are various components of the market that move it in every which direction. The market we currently live in is due to low morale and even lower prospects of the future. The USA is witnessing a larger outflow of equity funds, draining traditional mutual funds, little growth in fixed income, and a tightening labor market. Adding all of these components together can lead many to believe a bleak future is headed our way. Moreover, the long term effects are yet to be seen and depend on many factors, but the market has not reacted well to the news of “Brexit.”
The Future Its Shape
There are many positives and negatives presented to investors in today’s market. If we are to thrive in this economy, it is important to garner as much information we have at our disposal and move in the best possible direction.
Business optimism is relatively dull, remaining constant since 2011, we cannot expect the corporations to be the driving force behind revitalizing the economy. Low optimism translates to poor spending decisions in terms of amping up the economy. The low morale drives many businesses to cut costs and lay off individuals in hopes of saving money, creating more uncertainty in the market.
Although we seem to have somewhat recovered from the immediate effects of “Brexit news” long term effects are yet to be seen. These will most certainly effect US’s interest in UK companies; no less than $588 billion represent aggregate US investments in British companies in 2014 alone. Pair that with weaker exports, due to a more expensive dollars and the future looks even bleaker.
Luckily, there is a light at the end of this rollercoaster. Wages have been rising steadily since mid-2013, translating into higher rates of consumer spending. According to the statistics, spending has increased 1% month-over-month this year.
What Does This Mean For Us?
It is not a comfortable time to be an investor. Maintain hope in your current investments, but be thoughtful and reallocate with intent. Understand your stock’s volatility and use it to rebalance your assets, often.