As we know, the success of our investments in 2019 will depend largely on how the US economy performs.
Buy low, sell high as the old saying goes: so will investors find themselves in a bear or bull market this coming year?
The condition of the economy will dictate where the smart money lies in 2019. Which assets to invest in – and which to avoid like the plague – will center on the strength (or otherwise) of the domestic and overseas markets.
The reality, frustratingly, is that even the most insightful of pundits are unsure as to how things are going to pan out.
We’re Growing…. Just Very Slowly
It would be fair to say that 2018 was a pretty solid year for the US economy.
The Gross Domestic Product (GDP) of the country rose by some 7.7% in the second half of the year, with consumer spending and local government spending both at healthy levels, according to the Bureau of Economic Statistics.
However, the forecasts aren’t quite as healthy for 2019, with Goldman Sachs expecting a significant slowing of growth.
The GDP could be down to 3.4% in the second half of the year; still positive of course, but a tricky situation for a President, who promised economic growth in his manifesto, to navigate.
The investment firm pointed to tighter financial conditions and a fading fiscal stimulus – namely the lessening returns of the 2017 tax reforms – as the main cause.
There are other factors, too. Donald Trump’s trade and immigration policies continue to cause uncertainty, as does a fragile political situation overseas, with Iran increasingly coming into the crosshairs.
And that’s before we even get on to the subject of interest rates. Quite simply, these are on the rise; good news for those with savings accounts, not so much for anyone needing to borrow money to purchase property or anything else for that matter.
The US Federal Reserve increased the rate of interest to 2.25-2.50% in December and, while that is treated as a signal of economic strength, it’s also a kick in the teeth for borrowers, who could see interest hit a 3% peak in 2019.
Could the ongoing trade dispute with China also be a factor? The President continues to impose tariffs on imports from the country, and the Chinese government has responded with duties of their own on US-manufactured products.
Source: Mohamed Hassan via Pixabay
It’s a scenario that hardly paints the US in the best of lights in the eyes of foreign investors, and a pull-out of investment in our economy is clearly not ideal.
Is a Recession a Possibility?
“In my personal view, our administration’s view, recession is so far in the distance I can’t see it. The basic economy has reawakened and it’s gonna stay there… I mean, I’m reading some of the weirdest stuff, how a recession is around the corner. Nonsense.”
Those were the words of Larry Kudlow, the president of the National Economic Council. But is he right to be so bullish?
The downturn of the Dow in December by almost 800 points is being treated as something of a warning bell, particularly with the US yield curve – a much-used indicator of economic strength – inverting; the first time in over a decade that has happened. As reported by Bloomberg, that’s an event that can precipitate a recession.
Wall Street analysts have pooh-poohed the idea of a recession based on the inverted yield curve, but have suggested that it does hint that the economy has peaked for the time being.
So What Does That Mean For Us?
Market predictions hint at stalled growth, rather than out-and-out economic annihilation, and so there is no need to race out to the shops to stock up on canned goods while proclaiming the end of the world is nigh.
Mind you, it might be savvy to tighten your belt somewhat, and take advantage of the numerous cost savings that are readily available to each of us.
In times of financial hardship, the first things that people tend to jettison are fun leisure activities. But it doesn’t need to be this way!
If you enjoy eating out, take advantage of loyalty cards and saving schemes. Many restaurant chains and coffee brands offer such programmes, where you can make your spending really work for you.
If you shop smart, you can make the most of rewards programs across a range of sectors, from groceries and clothing to fitness and travel. We have entered the golden age of loyalty-based spending, so don’t be afraid to make some changes to your daily habits in order to save a few bucks….economic slowdown or otherwise!
Now could be a good time to consolidate your debts too. There are countless 0% interest credit cards available, including options like the HSBC Gold Mastercard, which offer zero interest on purchases and balance transfers for the first 18 months. If you are swimming in a sea of debt, make prohibitive interest payments a thing of the past.
And take a second look at your investment portfolio. Will your assets survive an economic downturn? How much value will be wiped off your portfolio even in a reduced growth market?
If you have any concerns don’t be afraid to talk with a financial adviser, who can help you to find the right path for the year ahead.