As we close out another year (and decade!), the markets in the United States are near all-time highs. We are starting the twelfth expansionary year since the “Great Recession”. Given this length of time, I tend to believe that there is probably more expansion behind us then ahead of us. That being said, presently there is little bad news in the economy. We are still seeing record employment and, overall, very positive economic activity. Occasionally, we are seeing some cracks surface, such as the recent manufacturing numbers, but so far nothing has adversely affected the economy.
So that begs the question, what can derail the economy? The easy answer is rising geopolitical tensions. All one needs to do is open a newspaper…. or perhaps more appropriately open a news website, to read a litany of concerns. Issues such as: trade tensions with China, Middle East issues, Latin American instability, and others. Of course, it is important to remember that most of these issues are not new and often flair up for a bit before settling down.
Moving past geopolitical and back to an economic point of view, the European experiment with negative interest rates seems to be fizzling out without much to show for it. There is a new head of the European Central Bank (the ECB), their version of our Federal Reserve Bank (the Fed), who will likely continue “unconventional” central bank actions.
Speaking of “unconventional” central bank actions, the Fed continues to support the “overnight repurchase market” or the Repo Market. The Repo Market is not something most individual investors concern themselves with. It is one of those parts of the financial system that is mostly obscure, but a necessary part of the overall system. At its core, it allows for very large and very short term (i.e., a day) loans between banks, large corporations, and other entities. Since September the Fed has been supporting this market and injecting funds into the economy. This is a positive for the markets, but the long-term effects of this policy remain to be seen. We’ve seen esoteric parts of the economy spill over and have broader effects in the past, like sub-prime mortgages. So, this is an area that we are keeping an eye on.
Often times there is no one single cause for the economy to falter and enter a recession, but rather, a number of disparate factors that come together to cause the change. However, much like a sports team, the coach tends to shoulder most of the blame if things go wrong. In our economy, the “coach” position is usually considered the President. In reality, Presidents get more credit than they deserve for good economies, and conversely, they shoulder more blame for bad economies than they deserve. Their actions often add (or detract) to the ultimate level, but not as much as they (or
their opponents) would like to think. The overall U.S. economy, especially given its integration into the worldwide economy, is probably the most complex system humankind has ever created.
For investors during this time, it is important to remember that portfolios are tools designed to help you reach your goals and not an end in themselves. The recent run-up may have increased the overall risk in your portfolio and it will be important to evaluate that risk and make sure it is still appropriate given your goals. If necessary, we may suggest a portfolio rebalancing with your goals in mind.
As always if you have any questions or concerns please reach out. We look forward to working with you in the New Year! c
Kevin P. Sullivan is a Financial Advisor with Raymond James Financial Services located at 1229 Lake Plaza Dr, STE B, Colorado Springs, Colorado 80906, and can be contacted at 719.576.4500. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Any opinions are those of Kevin P. Sullivan and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and investors may incur a profit or a loss. Prior to making an investment decision, please consult with your financial advisor about your individual situation.