Let’s take a few minutes, look under the hood of our economy, and understand the poor economic and investment trends that will impact our investment strategies in 2020 and beyond.
The Economic Outlook Is Not Encouraging
Dr. Lacy Hunt’s latest Hoisington Investment Management Q4 2019 Review and Outlook. Dr. Lacy provides great detail and evidence for his commentaries.
He again paints a worrisome outlook as economic growth continues to slow. Bonds rallied last year, which shouldn’t happen in a strong stock market/economic environment.
Why Are Bonds (And Other Conservative Investments) Rallying In A Record Hitting Stock Market?
The rally in bonds despite the stock market setting records is telling. That and the fact that bond funds attract more money than stock funds. If you scroll to the bottom of the article where it provides the specific net inflows per fund you will see the individual fund winner as the Fidelity 500 Index fund, an equity fund. This and a few others are the beneficiaries of consistent ongoing 401k contributions. Fidelity is the largest 401k provider, by far. Despite these inflows to 401k stock funds, bond funds still dominated attracting more money.
Stock fund outflows were the worst in recorded history for domestic stock funds and second worse for international stock funds per this Seeking Alpha article. Not an encouraging sign if you feel that this longest bull market in history can continue for years to come.
Will The Negative Underlying Trend Continue?
This all doesn’t mean that the bull market won’t continue in the near term. Obviously no one knows when an economic cycle will end.
Baby boomers retiring and reversing the spigot, from pumping money into their 401ks to taking it out is not favorable from a supply and demand perspective. The large baby boomer demographic retiring hurts our ability to continue to see new stock market highs for years to come. I touched on this in this blog post – Jeffrey Gundlach – We Won’t See These Market Highs Again In Most of Our Lifetimes.
What’s The Average Investor To Do?
To be clear, we are not advocating selling all of your stock. Just have a plan. Know where you are in the cycle and plan accordingly. A great book on the subject was recently written by the venerable investor Howard Marks – Mastering the Market Cycle – Getting the Odds on Your Side.
A stock market correction could be a set up for another bull market push, no one knows. As Howard Marks notes in his Mastering the Market Cycle book, you need to know where you are in the cycle and adjust your portfolio risk accordingly. If we do have another bull market push the probability of a sustained and significant bull market run at these high valuation levels, and continuing the longest bull market advance in history, is low.
So those are the poor economic and investment trends that we have to take into consideration. The game plan for investing in an overheated/over extended stock market? We touch on that in our regular Market Value Update posts (you can read the newest one is right here).
Please don’t hesitate to contact us with any questions!
At Bartley Financial, we care about way more than just your finances. We care about the life you’re trying to live (finances are just a piece of that!).
Call us anytime you need fresh perspective on your finances or help achieving your goals. We’re happy to help!