Stocks surge but small business becomes skittish
While market volatility may have you fearful of what’s next, a recession may be further off than you think. Read on to get the details.
Best January Rally in Over 30 Years – stocks recovered sharply in January, with the S&P 500 and the Dow Jones Industrial Average delivering the best start to a year since the 1980s. Small-cap companies and banks were among the top gainers, as investors shifted favor to economically sensitive areas. The yield curve also steepened over the month, boosting financial stocks and perhaps indicating broad consensus that a recession may be further off than many feared. The compelling recovery in stocks appears largely driven by the Fed pivoting to a more dovish stance on rates, with no rate increase at the December meeting and comments pointing to a more patient approach going forward. Taken together, stocks have rebounded 15% since the low point reached on Christmas Eve. But a harsh reality exists for many investors: according to Lipper data, investors moved more than $190 billion into cash in Q4 2018, which marked the most significant move to cash since 2008. Investors also pulled a record $25 billion from U.S. stock exchange-traded funds last month. In short, while stocks have surged off the bottom in January, many investors were on the sidelines for the rally. This outcome serves as a stark reminder that reacting to downside volatility often results on getting whipsawed when markets recover.1
Many investors do NOT feel on track with their retirement, and many do not know how to plan for their future when the market is so volatile. Thankfully, you can review where you are at in your retirement planning and potentially improve your odds of enjoying a comfortable retirement.
To help you navigate through this process, we recommend using our free guide, “Retirement Made Easy.”2
If you have $500,000 or more to invest, download our Retirement Made Easy Guide today!
Small Businesses Grow More Cautious Late Cycle – Small businesses had one of their most confident and productive years in 2017, but last year grew more cautious about investment and hiring. Even with the January rally, economic confidence among small businesses continues to decline, reaching its lowest level since President Trump’s election. Uncertainty about how much runway is left in the economic expansion has caused 28% of small businesses to scale back hiring, private fixed investment, or both. Small businesses tend to be optimistic about their own prospects even as confidence in the broader economy declines, so this is a trend worth monitoring.3
A Floor on Oil Prices? In a partnership that could transform OPEC and influence crude oil prices significantly, Saudi Arabia and its Persian Gulf allies are supporting a partnership between OPEC and a 10-nation group led by Russia. The end goal is two-fold: to create more substantial competition to a booming U.S. shale market, and also to have greater control over oil prices – essentially putting a floor on price. The Saudi proposal would formalize what is currently an informal union between the 14 OPEC members and the group led by Russia.4
Beware of Getting Too Comfortable with Risk – the January rally came as a relief to many equity investors, but it also inspired some to increase risk perhaps in an effort to ‘juice the rally.’ In Q4, investors trimmed margin debt at the fastest pace since the 2008 financial crisis, but in January a near-full reversal took hold. Investors also flocked to junk-rated bonds in January, which while risky for the investor is also an important driver to the U.S. economy.5 November and December saw a sharp slowdown in debt (which correlated with an equity sell-off), but a recovery in January showed that companies are still actively able to refinance debt and invest in people and equipment.6 This margin reversal, the rapid-fire trading in the junk bond market, and investors shifting from equity to cash and back are signs, in our view, of investors “chasing heat” in a volatile market. Better to focus on the long-term fundamentals.6
The January rally combined with warnings to not get too comfortable can leave many investors wondering how to prepare for what could happen next…especially as it might affect their retirement plans?
And the hard truth to swallow is that we believe the vast majority of investors are NOT on track with their retirement savings. Thankfully, you can review where you are at in your retirement planning and potentially improve your odds of enjoying a comfortable retirement. To help you navigate through this process, we recommend using our free guide, “Retirement Made Easy.”7
This guide can help you plan for retirement with more confidence by attempting to answer tough retirement questions and helping you plan for what’s next.
If you have $500,000 or more to invest, click on the link below to get your free copy today:
2 ZIM may amend or rescind the “Retirement Made Easy” guide for any reason and at ZIM’s discretion.
3 The Wall Street Journal, February, 3, 2019. https://www.wsj.com/articles/small-businesses-are-waving-the-caution-flag-11549198801
4 The Wall Street Journal, February 6, 2019. https://www.wsj.com/articles/opec-pursues-formal-pact-with-russia-11549394604
5 The Wall Street Journal, February 4, 2019. https://www.wsj.com/articles/januarys-stock-market-rally-revives-appetite-for-risky-margin-loans-11549281601?mod=djem10point
6 The Wall Street Journal, February 4, 2019. https://www.wsj.com/articles/junk-debt-is-back-11549142343?mod=djem10point
7 ZIM may amend or rescind the “Retirement Made Easy” guide for any reason and at ZIM’s discretion.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.
Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.
This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.
Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.
Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable.
Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.