Marzano Capital Group: What’s Going on in the Economy?

Wealth Manager

In the current market, we have all been feeling the angst and remember well what volatility feels like. Fears of tariffs and trade wars, and real wars with guns and missiles, all seem to be looming in the not too distant future. Many people we talk to feel like they are getting mixed signals. The news and the media continue to focus on the negatives; they have to, it sells better than good news. While we cannot be certain what the future holds, let us take a minute to focus on some positives that may not be in the headlines as much.

Real business investment as a percentage of Gross Domestic Product (GDP) continues to rise, as does productivity in the agriculture sector, and unemployment is at record lows. The Dow Jones Industrial Average (DJIA), while lower than its peak of 26,616.71, is still well above 19,887, which was the last day of the previous administration. We are not here to debate which administration is good or bad, but rather to put things in perspective.

We are seeing larger daily swings in the market, but we also have a much bigger market. A 500-point swing in the DJIA at the bottom in 2008 would have meant a 7.58% change. The end of 2012, 3.82% and as of 4/6/2018, 2.09%. Remember also that the DJIA reflects the performance of only 30 stocks traded on the New York Stock Exchange. The S&P 500 might be a better index to follow since it is comprised of 505 stocks issued by 500 large-cap companies and covers about 80% of the equity market by capitalization. Most portfolios also contain mid-cap, small-cap, international and bond positions giving you diversification in different sectors. Diversification is designed to help reduce volatility over time. This simply means you may have some assets that are down while others are up.

We are living in a time of an avalanche of both data and pessimism, but actually are achieving great things. Our share of the world’s GDP is almost 25%, employment rates are rising for all education levels, oil production in our country is at an all-time high, as are our exports of crude oil, and electricity generation is near an all-time high while CO2emissions keep declining.

I present these facts because we often get caught up in the negatives we hear and that affects our investment decisions, particularly during periods of perceived high volatility. Volatility has been measured. In fact, a study was done by Kenneth Washer, Randy Jorgensen and Robert Johnson entitled “The Increasing Volatility of the Stock Market.” It examined the period between 1926 through 2014 and came to the conclusions that investors should focus on their long-term investment objectives and simply ignore the daily noise of the market.  If you are worried, however, I would suggest sitting down with your financial advisor and discussing your concerns and portfolio allocations. Measure your level of potential risk with such tools as “Riskalyze,” which we use daily. Remember also, as I stated in a previous article, that focusing on your goals also puts things in perspective. Let’s clear away the clouds of despair and doubt and focus on the positives in the economy. I’m not saying things are perfect, but there are a lot of positive movements, and the American economy is one of the most resilient in the world. Perhaps a buying opportunity is in store.


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