Will The Global Slowdown Hurt US Stocks?
We are getting more and more evidence that there is an economic slowdown happening around the globe. It hasn’t reach the shores of America, but the fear is that it might.
Now we are seeing the real cause of the December mini-crash. Stocks always drop well in advance of an actual event, approximately 6-9 months, so a slight slowdown may appear sometime this summer.
The good news is that the market has rallied strong off the December lows, indicating that the economic slowdown and earnings recession will be well contained and growth will resume thereafter.
It’s clear that the rest of the world is doing a lot worse than the U.S. China is growing at their slowest pace in almost 40 years, partially due to the trade dispute with the U.S. Brexit is weighing heavily on Europe and the United Kingdom and we have continued weakness from Japan, which looks like a bug in search of a windshield. We are the eyes of the world as American stocks are standing out as the best game on the block.
A big reason is that the U.S. economy is more self-contained than other economies because the consumer makes up 70% of the U.S Economy, while trade is the biggest part of the economy for most of Europe.
One alarming fact is that first-quarter earnings growth for the S&P 500 companies is now forecasted to be negative. This is a drastic turn for the worse, down from the greater than 3 percent growth just seen in December. However, this should be taken with a grain of salt as we received tremendous growth the year before due to the new tax plan.
While it is true that stock performance is based on their earnings, the earnings slowdown or “earnings recession” as some are calling it, may not have as negative an impact as some are predicting. The fact that it is being discussed and now expected is a tremendous positive because stocks react more to surprises.
Corporate earnings start coming out next week and if they come in below the reduced expectations, the market will sink. However, with expectations already low, I suspect earnings won’t be great but that they will beat expectations, and stocks will resume the uptrend.
I am very optimistic for the market this year, although I do expect a pretty good correction at some point. It may not be that big, 5-7%, but it will hurt, so be prepared. It’s normal and necessary. And no, you cannot trade it so don’t try.
The way to avoid the emotional roller coaster is to have a solid plan. Your portfolio can only do as well as your Retirement Master Plan tells it to, and you can’t be at the whim of the market.
Financial success relies on you sticking to your master plan, taking advantage of tax strategies that are available to you, investing tactically (never buy-and-hope) and having asset protection on your portfolio. This is what we help our clients with every day.
Give us a call for more information!
“Invest for need, not for greed™”