Bill C. from Livingston, MT asks: Mitch, I read an article on Bloomberg last week stating that a big crop of fund managers and strategists think the bull market is ending next year. Even if they’re wrong, the consensus seems to be that the good times are winding down. What should the investor response be? Should I start to tilt my portfolio into a more conservative stance?
Mitch’s Response:
Thanks for taking the time to write, Bill. I noticed the Bloomberg article that you referenced from last week and thought it made some good points. But, I also saw some weaknesses to the overall message and findings. Let me start with those first.
For one, we were not given a sense of who the participating fund managers and/or strategists were. Are these folks that have a verifiable track record of accurately forecasting the direction of the market? Or perhaps the opposite is true? I’m sure they work at big firms if they participated in this Bloomberg study, but size, in this case, is not directly correlated with accuracy, in my opinion. Investors should be careful to hang their hats on predictions that originate from all corners of the market.
Second, it appears that many of the concerns listed were centered around the fixed income markets and were related to central bank actions. One of the main points was that continued tightening by the Federal Reserve in the absence of sustained inflation could trigger a recession – I tend to agree with that line of thinking. Another risk mentioned was the messy unwinding of the massive monetary stimulus over the last few years to shore up financial systems and the global economy – again, a point I agree with. But, these are both big ‘ifs,’ in my view. A bearish stance assumes that central banks will get this wrong, which while possible is no certainty.
Third and lastly, many of the bearish forecasts called for a recession and/or bear market at the end of 2018. That is still a long way off! At Zacks Investment Management, we focus on what’s in front of us, making our forecasts six to twelve months out. Looking out any further than that runs the risk of conditions changing dramatically, for better or worse. There are too many unknowns and variables that could change the direction of the global economy, from policy making to war to central banking actions.
What we know today is that global GDP growth is expected to be nicely positive in 2017, with corporate earnings and revenues on the rise. Global manufacturing PMIs are solidly in expansionary territory, the yield curve is upward sloping (though its flattening), and leading economic indicators are high and rising. Even if these forecasters are right about the bull market ending in late 2018, the base case remains that conditions looking out six months are still quite positive. I’m not sure it makes sense now to plan out that far ahead when conditions are on solid footing in the current environment.
As for your personal portfolio, Bill, I cannot comment on what changes you should potentially make. In order to do that, we’d need to know more about your financial situation and goals, and what you’re looking for in your retirement and estate planning. For all I know, you should tilt your portfolio into a more conservative stance, but not for the reasons listed in the Bloomberg article. If you want to reach out to our team here at Zacks Investment Management to run a free analysis of your portfolio so we can make recommendations, please do not hesitate to contact us at 1-888-600-2783.
While forecasts for the short-term still look positive, it is not too soon to be proactive and make sure your portfolio has adequate diversification and risk-controls should the market take a turn. With that said, while you can’t predict when the bull market will take a turn, the right investment strategy can make an enormous difference over the long haul. To learn more about various strategies catering to different investment objectives download our Dean’s List of Investment Strategies. Our Dean’s List describes five of our investment strategies that have been placed in the top rankings out of hundreds of equity managers in the Morningstar Equity Universe. To get your free copy, click on the link below:
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