Today’s market is full of headwinds, but the fears of an impending recession are largely overblown. Recent volatility in the stock market can be easily explained, and a slowing global economy isn’t the only driving factor.
Investors that dip out of the stock market during this critical time could find that potential gains are lost. Here’s why there’s still a lot of hope in the market today.
Slowed Growth is Not a Recession
Several high-profile publications, both online and in traditional print, have pointed to a slowdown in growth as an indicator that a recession is right around the corner.
It’s important to make a distinction here. A recession is negative growth. Slowed growth is simply a tapering off when compared to recent performance. The economy is still growing, just not at the same rate that has been seen in recent years.
Job data is strong, unemployment is hitting record lows, and consumer spending is still robust. GDP is increasing, and inflation is virtually non-existent.
Businesses are still optimistic about the economy, but they aren’t investing as heavily as they did two years ago. This is not a signal to start panicking, but there are some things to keep in mind.
- Corporations will likely see reduced earnings growth compared to recent years, with some exceptions in some of the strongest performers like Amazon and Microsoft.
- Stock prices could see corrections as the large bears pull out of the market. This could create interesting buying opportunities.
- The current volatility could hit as hard as it did in 2018. Trade tensions could spark selloffs before Christmas.
The majority of private investors are in the market for the long term, especially when investing for retirement. Short term volatility, like that seen in recent weeks, is not the time to panic and sell.
It’s Still Important to Be Cautious
While a recession before 2021 looks extremely unlikely, investors should still exercise caution when making financial decisions. It’s important to be selective when it comes to buying stocks. The most robust industries are some of the most promising today, with the housing and energy sectors looking especially healthy. Bioscience and healthcare stocks are also interesting, considering that the established players operate on business models that are minimally impacted by consumer trends.
The bottom line is that the stock market is healthy today. The NASDAQ has seen 18.41% growth since January. The S&P 500 has grown 15.20% in the same period. Trade tensions and volatility have failed to wipe out the gains, and it’s the investors who have an eye on the long-term future that will do best in this uncertain but still very robust market.
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