There have been some notable shortages in this economic expansion. A shortage of GDP growth, a shortage of inflation, a shortage of personal income growth, lackluster private business investment, loan growth that hasn\u2019t quite kept up with demand. Taken together, it has resulted in what we term \u201cmuddle-through\u201d economic growth. It\u2019s growth that\u2019s acceptable, but runs a bit short on inspiration.<\/p>\n
Taking issue with this kind of \u2018weaker\u2019 economic growth is more of a political stance than an investment mindset \u2013 stocks don\u2019t care if growth is slower than average. Growth is growth, and as long as corporate earnings are increasing, stocks can do just fine (and they have done just fine).<\/p>\n
At this stage of the economic, political, and bull market cycle, however, there is one factor that there seems to be no shortage of: uncertainty.<\/strong><\/p>\n As Expectations Rise, So Do Uncertainties<\/strong><\/p>\n \u00a0<\/strong>The stock market rally since the election of President Trump has often been attributed to an increase in investor confidence. Stocks are rising, many argue because investors are anticipating a business-friendly administration with lower taxes and fewer regulations across the board. Throw-in infrastructure spending and a hard line on domestic production, and the expectation of accelerating economic growth and inflation seems perfectly logical.<\/p>\n And to be sure, there may be some truth to that line of thinking. But, it doesn\u2019t mean there is any certainty<\/em> about how we will get there. If anything, the past few weeks have served as a reminder that government and policy-making are extraordinary complex and frustrating endeavors, and that dead-ends and disappointments come with the territory. The x-factor may be how effectively President Trump can build consensus in Congress when it comes to actual lawmaking \u2013 a factor that very much remains to be seen.<\/p>\n And so, with this as the current background, we start to see some of the uncertainties build. How many of the economic-oriented promises can be kept? How many distractions and\/or battles will come in the way of giving the market what it\u2019s \u201cexpecting\u201d based on campaign promises? If the reality of policy-making is far less substantial than what was promised, will the market throw a tantrum? These are all of the uncertainties investors need to watch for.<\/p>\n Be Careful Not to Let Uncertainty Give Way to Panic<\/strong><\/p>\n \u00a0<\/strong>At some point in the future, uncertainty about the direction of the economy, government, and the stock market may feel <\/em>in disarray (if it feels that way now, stay cool \u2013 the U.S. is still poised for growth and economic conditions are healthy). That \u2018disarray\u2019 may be accompanied by some selling in the stock market, and investors may be quick to remember the 2008 Financial Crisis. In my opinion, given all the build-up that may lead to that period, it\u2019s going to be easy to panic.<\/p>\n And that\u2019s where the theme of this article comes into play: how to capitalize on uncertainty. <\/em>In Warren Buffet\u2019s annual letter to shareholders of Berkshire Hathaway, he sums it up about as good as anybody can, and his words fall into line with our philosophy here at Zacks Investment Management. His quote:<\/p>\n \u00a0<\/strong>\u00a0\u201cDuring scary periods, you should never forget two things: First,\u00a0widespread fear is your friend as an investor<\/strong>, because it serves up bargain purchases. Second,\u00a0personal fear is your enemy<\/strong>. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well\u201d<\/em><\/p>\n Bottom Line for Investors<\/strong><\/p>\n \u00a0<\/strong>As far back as any reader can scan in the volumes and volumes of works that I\u2019ve published, you will be certain to find a steadfast commitment to simplicity in investing and a firm belief in the long-term value of equity investing. Investors are best served taking a long-term approach and keeping their emotions as far away from their investment decisions as possible – Build a diversified portfolio that takes great care to select stocks and asset classes in which to invest, keep close watch on it over time, and make adjustments when necessary\u2026but then just back away and give it time. <\/em><\/p>\n As far as uncertainty is concerned, make it your friend. When everyone is running for the hills and fear permeates the marketplace, that\u2019s when investors should redouble their long-term commitment to equities.<\/p>\n","protected":false},"excerpt":{"rendered":" There have been some notable shortages in this economic expansion. 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