As investors have been hoping for a little something from Santa Claus this year, a 1983 Anne Murray song, “A Little Good News” might seem appropriate. In her song she complains about the daily barrage of media negativity and suggests how nice it would be if just one day the headlines read, "Not much to print today, can't find nothin' bad to say.” I chuckled as I reread her lyrics and realized not much has changed in 35 years.
The barrage of negativity continued after the meeting of the Federal Reserve this week, which was accompanied by another drop in stocks. I read the speech by Chairman Powell after the meeting hoping to find what all the fuss was about and here are some highlights.
He mentioned that the U.S. economy remained “healthy and solid.” Hmm, that didn’t sound like bad news to me so I kept reading. Powell then predicted the GDP growth rate for the economy in 2019 would be 2.3%. Once again I was scratching my head. Economists say an ideal growth rate is anywhere between 2 and 3%. So with the Fed predicating an “ideal” rate, why the complaining? Have we so quickly forgotten how thrilled we were in 2017 when GDP hit 2.2%?
This year growth will surpass 3% so maybe that is the real problem. Maybe investors have become like the spoiled kid who gets a pony for Christmas and then the following year complains when he only gets a new bike.
Powell went on to say the Fed expected unemployment to continue going down, wages to go up, and inflation to stay in check. This was all great news, but investors remained unimpressed.
Finally, Powell announced that due to the continued strength in the economy, and in order to keep a lid on any potential inflationary pressures, the Fed would likely raise interest rates two more times next year bringing the Fed rate by year end 2019 somewhere near 2.75%. The markets seemed unhappy with that announcement.
So let’s turn back now to Anne Murray’s song, and 1983, for a little perspective from an investor point of view. Despite Miss Murray’s gloomy lyrics, the Dow Jones average that year ended up 20%. Apparently Anne was not an investor or she would have been singing a different tune. What is remarkable is that the Fed rate that year ended over 9%. Such a rate would likely cause widespread panic today. Maybe 2.75% only looks bad because last Christmas Santa gave us 1.5%. Could this be another case of investors acting like spoiled children?
So the economy is strong and indications are that the strength will continue, yet investors continue to complain and sell their stocks at increasingly lower prices. It appears that any hopes for a gift from Santa is unlikely. But wait! Did I just say stocks are getting cheaper? Maybe Santa really has brought a gift for investors this year after all.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
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