This week raised concerns for many about their stock market investments. As a certified public accountant, I avoid offering investment advice. Nonetheless, I feel secure keeping my funds in the stock market. Why? Let’s consider the bigger picture.
Markets are still way up
Younger millennials and Gen Z individuals might be anxious about the recent downturns in the market. However, this isn’t the first time we’ve experienced such turbulence – and it has been worse before. Back in March 2009, the Dow Jones Industrial Average lost over half its value from its previous highs. In contrast, over the last 15 years, it has grown six times its original value.
The current economic challenges are not as dire as those in 2009. Market corrections are natural, and speculation can sway the markets. The Dow Jones Average has declined roughly 15% from its peak last November, but it remains at a significantly higher level compared to late 2022.
The economy is OK
Last month, over 228,000 jobs were added to the economy, despite significant cuts in government roles. Other economic indicators still show strength. While manufacturing contracted last month, this isn’t surprising given its persistent decline over the years. The service sector has been in its ninth consecutive month of growth. Unlike 2009, capital is still accessible, and our banking system remains robust. Consumers continue to spend, and wage growth is outpacing inflation.
It’s too early to judge Trump’s tariff moves
Indeed, Donald Trump’s trade policies may be disruptive. In the coming months, we might see a clearer picture. Trump’s approach to compel the U.S. economy to “face the music” early on in his administration could be a strategy to time an economic rebound toward the end of his term. More market fluctuations could arise from speculation and attention-seeking behavior, but I don’t anticipate the same market crash as seen in 2008.
Growth policies under way
Additionally, several pro-growth policies are either in progress or on the horizon. Regulatory oversight by the federal government has been lessened due to various executive orders and agency reductions, allowing business owners to focus more on their operations instead of regulatory concerns. Both the House and Senate are preparing to discuss tax cuts, which could make many benefits from the 2017 Tax Cuts and Jobs Act permanent, potentially eliminating taxes on capital gains, overtime pay, social security, and tips.
A cooling of inflation?
The bond market suggests that inflation may be cooling off, as bond yields have dropped significantly in recent weeks. When inflation expectations decrease, bond yields also tend to drop. Traders believe that, despite tariffs, economic slowing could mitigate price increases and prompt the Federal Reserve to lower interest rates. While this slowdown might lead to a recession, lower interest rates would reduce borrowing costs and help alleviate government debt expenses.
A sector that would greatly benefit from reduced interest rates is residential real estate, comprising approximately 18% of the U.S. economy. Many potential homebuyers and sellers have been hesitant due to elevated interest rates, but with falling bond yields, mortgage rates are also decreasing. The average mortgage rate, once around 8%, has dropped to about 6.5%. This might signal a resurgence in the market, and as spring and summer approach, it’s likely we’ll see more buyers and sellers entering the market.
While many economists and commentators might disagree with these perspectives, the key takeaway is clear: avoid selling your stocks. Stay strong. History indicates that investing in a diverse stock market through mutual and index funds typically yields better returns than most other investment types. If you have extra funds available, consider increasing your investment in these areas. Always consult with a qualified financial advisor and assess your individual risks. But don’t worry; you’ll be alright.
