It’s amazing how quickly sentiment can change. And the change from last December shows the importance of focusing on data and not sentiment. During last fall’s downturn, it seemed that everywhere you looked, people were talking about a global slowdown and a coming recession in the United States. Pessimism abounded, yet much of the data – jobs growth, wage gains, mild inflation, and growing corporate profits – suggested the pessimism was overdone.
For much of the first quarter of this year, we’ve experienced what I would call lackluster sentiment, with many suggesting the nearing of the end of the current business cycle (recession within the next year or so) and a hesitancy toward the equity markets. Many seemed to continue to ignore solid gains in jobs and wages without any sign of inflation. Many pundits expected economic growth to slow dramatically this year and for profit growth to evaporate.
While I don’t have a crystal ball and don’t try to predict what may happen tomorrow (much less six months or a year from now) the economic data continue to hold up quite well. Today offers another example: first quarter GDP (Gross Domestic Product) came in – up a whopping 3.2%. Most analysts were predicting something close to 2%. The first quarter has traditionally been a weaker quarter than others and this 3.2% number is the highest in four years. And the first quarter of 2019 included a 5-week government shutdown and a February characterized by exceptionally cold weather. Yet growth was still over 3%. Quite impressive!
I write NOT to suggest allocating a lot more of your portfolios to stocks. Instead I write to hopefully alleviate some concerns that typically accompany the market when it reaches all-time highs. Yes, the market is back to levels last seen in October 2018, right before the downturn. A common sentiment I hear at times like these are: things seem so bad in the country … everything is unsettled … how can the market be this high? Shouldn’t we get out? My answer is no. Strong economic performance and strong corporate profits support the market at this level. We are in the midst of earning season, with corporations reporting their first quarter profits. The feared earnings recession is not showing up so far. That, coupled with this first quarter GDP number, suggest that we’re in a good spot. Enjoy it until the data suggest a change.
We’re watching the data every day and we’ll keep you posted. If you have questions or would like to chat, please let me know.
Have a great weekend and enjoy the spring!
