The dominant mood in the market today is not complacency but anxiety. We spend many hours with our customers talking about the various negative news surrounding the global economy.....with the ugly word R being thrown around everywhere one turns.
There are many signals that seem to portend a global "Recession". German interest rates are negative as it is in Switzerland while in America the curve is inverted...a peculiar situation that is a harbinger of recession. China announced its lowest industrial production growth in 17 years. The dollar is up and gold is at a 6 year high.
Yet recession is so far a fear, not a reality.
The world economy is still growing, jobs are plentiful, wages picking up and cheaper oil has meant more money to spend. There is little sign of the heady exuberance that normally precedes a slump, as most of us long term investors know. India, however, is not close to a recession but is witnessing a crippling slowdown.
So then why are the markets so anxious?
Firms and markets are struggling with uncertainty. Whether it is the trade war between America and China or between Japan and South Korea. Uncertainty has resulted in global capital spending falling with the stuttering business sentiment. Central banks are anxious, too, and easing policy as a result. From the US Fed in July to Central banks in Brazil, India, New Zealand, Peru, the Philippines and Thailand....all have reduced their benchmark interest rates. ECB is likely to resume its bond-buying program.
Looking for meaning in financial markets is like looking for patterns in a violent sea. However, we need to keep our eyes on 3 key warning signals - the Dollar, the trade negotiations and the Corporate bond yields in the USA.
Part of the issue with economic and market downturns is that the panic around them can result in self-fulfilling prophecies. People worry something bad is about to happen, so consumers stop spending, investors pull their money out of the markets, or businesses don’t make the investments they were going to, and then that makes things worse.
And if and when the recession hits, a lot of people get stuck in a holding pattern. They get nervous to change jobs and put off making big life decisions, such as buying a home.
So where does it leave investors like us? Now is not be the time to panic and sell everything; trying to time the market is always tricky. Sophisticated fund managers with large access to pools of cash understand this better than us and are already assimilating this information. it is possible that they get this wrong but the odds are you are not going to beat the professionals.
The bad news is that recessions are pretty inevitable, meaning sooner or later, one will land. The good news is that the economy eventually recovers. The same goes for the stock market. Honestly, stock market dips are often a good time to buy.
Let's keep our eye on our goals and not panic and try to time the market!!
Sources: Economist, Livemint & Vox