By Don Schreiber, Jr. – WBI Founder and CEO
The markets are in the midst of a May meltdown and investors should grab their life vests before their portfolios drown. As you can see from the returns below, the markets are in need of a bit of saving.
Investors should be keeping a close eye on the following:
- Bad politics which drive the market lower.
- The trials and tribulations of Trump policy are starting to weigh on the markets. Congress is currently a toxic cesspool with members seeking to destabilize Trump’s presidency through probes and investigations. Quite frankly, I’m tired of the absurdity brought forth by members of Congress and wish they would focus on policy.
- The U.S. has a clear Infrastructure crisis and the cost of failing to address America’s infrastructure issues is high. The Democrats have put the infrastructure crisis on hold in order to position for the 2020 election. I’m hopeful that our president and his cabinet will embrace a path toward better infrastructure before our economy slides further toward recession, but voters can make a difference too. Votes will never count more than in upcoming elections.
- The Brexit debacle has been looming for quite some time now, and the U.K.’s exit date has been delayed until October 31, 2019. The effect of Brexit on financial markets could be as profound as the act of Brexit itself.
- Trade Deal with China
- I have to ask myself if a resurgence of the Cold War is brewing with China. There is no likely trade deal until June 29th when President Trump and President Xi Jinping meet at the G20 Summit. Could the leaders of the two superpowers of the world step up and avoid creating a disaster of their own making? I sincerely hope they do because I believe the trade war has the potential to push global economies into recession.
- Soft GDP and Consumer Spending
- The latest GDP forecast was looking weak with a forecast of just over 1%. A quarter ago, the Atlanta Fed was forecasting 3.5% GDP. With the huge dispersion, consumers will begin to be wary. This seems to be having a direct impact on consumer spending, which shows retail sales beginning to fade. Consumer spending drives 70% of U.S. GDP, so withering trends in consumer spending will circle back to affect a downward GDP trend.
- Inverted Yield Curve and Interest Rates
- Markets are continuing to sell off and we have inverted yield curves all over the place. Past research has shown that inverted yield curves tend to predict recessions. The inverted yield curve could also weigh on the Fed’s decision to cut interest rates. If the Fed follows the markets, they may have to cut rates long before they intended to.
Overall, there are a lot of unanswered questions that are overhanging the markets. One of my favorite movies is Hope Floats, and I’m hoping that is exactly what the markets do. If we get a trade resolution along with interest rate cuts, this could offset the damage potential the earnings cycle, soft GDP, inverted yield curve, and Brexit could have on the markets.
Past performance does not guarantee future results. The views presented are those of Don Schreiber, Jr. and should not be construed as investment advice. Don Schreiber, Jr. or clients of WBI may own stock/sectors discussed in this article. All economic and performance information is historical and not indicative of future results. This is not an offer to buy or sell any security.No security or strategy, including those referred to directly or indirectly in this document, is suitable for all accounts or profitable all of the time and there is always the possibility of loss. Moreover, you should not assume that any discussion or information provided here serves as the receipt of, or as a substitute for, personalized investment advice from WBI or from any other investment professional. To the extent that you have any questions regarding the applicability of any specific issue discussed to your individual situation, please consult with WBI or the professional advisor of your choosing. This information is compiled from sources believed to be reliable, accuracy cannot be guaranteed. Information pertaining to WBI’s advisory operations, services, and fees is set forth in WBI’s disclosure statement in Part 2A of Form ADV, a copy of which is available upon request.
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