It’s a time of uncertainty, and everyone needs to know that uncertainty is the biggest thing that investors do not like. We’re trying to look at what this is going to mean for our stocks.
We looked at the Goldman Sachs Economic Outlook. There are some positives in that. They are holding their estimates for GDP for next year at 2% for right now. They say that a rate increase by the Federal Reserve is less likely in December, but we’re going to see.
One of the things that was mentioned in his acceptance speech was infrastructure spending. That spending, that fiscal stimulus, could actually aid growth—could push us economically. Of course, this is what economists have been asking for for eight years. We’ll see if now that “their guy” is in the White House, if the deficit hawks are willing to sign on to a big spending package.
And, of course, any defense spending could aid growth.
What are the negatives? The thing that we’re really concerned about more than anything is trade barriers and tariffs. You know, it sounds really great to put some of those tariffs back on and protect our local jobs, but that would mean a ding to economic activity, and it’s going to mean we’re all going to pay higher prices on goods.
The other thing… If we have more spending (the good thing of the infrastructure and defense spending), it would mean bigger deficits, and that will lead to inflation. We’re looking at the impact on the Federal Reserve and who those replacements will be.
We also think we might see some lower outlooks for the next few quarters simply because of the uncertainty. When business doesn’t know what’s going to happen, they’re going to pull back. When people are uncertain, they’re going to pull back. And that’s happening right now as we’re facing a big spending season with Christmas.
So, what happened to securities markets? Well, the futures, which is the outlook for what the markets will be when they opened, tumbled dramatically at first, but they moderated. Then, we ended up with a nice gain on the day yesterday. It’s pretty wild today. The bond market is really crazy right now as yields are rising, and those prices are falling.
What really gained? Defense gained; that sector gained. Healthcare gained. Financial gained. And, of course, gold gained; but gold is a fear play, so we watch out for that.
What lost? Consumer goods and interestingly enough, autos.
So, remember, uncertainty is the biggest problem for the markets, and the next few quarters will be critical. Business may hold off on spending. We’re watching to see what will happen with the markets, and we’re expecting a lot more volatility (or ups and downs).
What should you do? We’re building a little bit more of a cash position, protecting our clients, being prepared if we do have some big down days that we can buy. But don’t stop saving in your 401(k). You’re still looking at that as long term. If you’re looking at taking on debt, this is a good time to do it, because our interest rates are going to go up. Go ahead and look at buying that house or that car and lock it in.
Concerning different sectors that have gone up or down, this is short term at the moment, because we don’t know what the policies are going to be. What we’re doing is building a cash position and telling our clients that we’re waiting for the first 100 days to pass. At that point, we’ll have some indication of what the law changes will be, what changes will be in trade, and that will give us direction.