As sure as summers will be hot here in Arizona, the stock market will serve up a scare every six months or so. The recent global stock market slump illustrates that. Times like this are why we ask questions such as, “Why am I investing?” It’s a reminder that we need an up-to-date, written, long-term investment plan which links up with the answer. A solid plan helps us resist the urge to react to inevitable short-term moves.
Trade with China has been highlighted as a “reason” for volatility. A big concern is that China will devalue its currency, the yuan. That would reduce the price in dollars for Chinese exports to the United States, offsetting the cost of proposed tariffs. However, China says it will not continue to devalue its currency, Forbes.com reports. Pressures on China from international currency markets to avoid doing so are enormous. Respected, non-partisan economist Gary Shilling notes, if there is a trade war with China, the United States will win.
“The buyer – America – inherently has the upper hand over the seller – China,” he says.
Another dark cloud has been the drumbeat of impending recession. We hear a chorus of
“The inverted yield curve!”
A normal yield curve is sloped up: short-term bonds, lower yields (interest rate); longer-term bonds, higher yields. As of today, that has flipped. The rate on the 2-year Treasury bond is a little higher than that of the 10-year bond. That has sometimes preceded a recession; however, the bond market eventually corrects itself. The longer-term bond “looks too expensive,” the price falls, and the yield increases. The Federal Reserve, with direct influence over short-term interest rates, has pledged to react swiftly by cutting rates if needed.
Current economic statistics speak for themselves: Retail sales and consumer confidence have surged well above economists’ expectations, “more than enough to keep the economy growing,” according to Marketwatch.com. Employment numbers are the best they have ever been in some cases, and in more than 50 years in other cases.
If you’re feeling the heat, take a moment to review your investment plan. Then pour yourself an icy sweet tea and stay cool as the summer and the markets boil.