Market volatility has picked up this year as investors worry about trade wars, rising interest rates and job growth. Has this uncertainty changed how you’re investing? And are you prepared for more volatility ahead?
Stocks have dropped in response to announcements of higher tariffs, reflecting legitimate concerns that possible trade disruptions could hurt U.S. consumers and companies. If higher tariffs are implemented, they also could potentially slow economic growth here as well as in China and other countries. But that’s not what we expect. Instead, we think negotiations will be successful in resolving the differences so trade continues and very few tariffs are increased.
Although the talk about higher tariffs and possible trade wars has definitely contributed to increased uncertainty and market volatility, they haven’t changed Edward Jones’ positive outlook. We continue to think the pace of U.S. economic growth will improve slightly in 2018 and 2019, and the tax cuts, combined with better growth, support double-digit earnings growth in 2018. Slightly faster economic growth and strong earnings growth can support rising stock prices over time.
There aren’t any signs suggesting a recession anytime soon. In fact, Edward Jones’ view is that economic growth is poised to pick up a bit due to the impacts of the tax cuts and increasing federal spending. In addition, although U.S. interest rates have been rising slowly, we don’t think they’re high enough to put the brakes on growth. Mortgages are still very affordable, and consumers are extremely optimistic. The unemployment rate dropped to 3.9% in April, its lowest rate in 18 years, as the economy continued to add about 200,000 jobs every month. These should all contribute to strong consumer spending, which is the main driver of economic growth.
No, but we think rising interest rates present some opportunities. Higher short-term interest rates have made cash and fixed-income investments more attractive. That’s a good reason to check whether you need to rebalance your portfolio to an appropriate mix of stocks and bonds. To prepare for continued volatility and take advantage of higher interest rates, consider adding CDs and other short-term fixed-income investments.
Most predictions don’t come true, so basing your investment strategy on them, especially those about short-term market and interest rate moves, can be costly. Make sure your investment strategy is based on what you’re trying to achieve with your money – in other words, your long-term financial goals – as well as your comfort with risk.
The stock market is just one risk: Inflation, interest rates and unexpected life events are other risks to factor in to your investment strategy. A long-term strategy that addresses all of your financial goals can help reduce those worries as well as some of the risks. Work with your financial advisor to develop a strategy designed to help you avoid reacting to predictions, reach your long-term goals, and feel more comfortable and prepared for the future.
This information is for educational and illustrative purposes only and should not be interpreted as specific investment advice. Investors should make investment decisions based on their unique investment objectives and financial situation.
Investors should understand the risks involved of owning investments, including interest rate risk, credit risk and market risk. The value of investments fluctuates, and investors can lose some or all of their principal.
Special risks are inherent to international investing, including those related to currency fluctuations and foreign political and economic events.