In the United States, the economic picture remains as strong as it has been for the past few years. The stock markets are the one thing that is negative for the US but we feel this recent market negativity is overblown. We are "somewhat" relieved to see the correction in the markets of 10% so we can continue to see further growth beyond where we were before. We think the level of fear is not merited because most economic indicators are positive and many US corporations exposure to the rest of the globe is minimal. This is not 2008. We are not the crisis.
Much of this slowdown in foreign markets is already priced into the markets abroad, so even though there could be further downside, we remain confident in foreign markets' future growth as well. Their P/E (price to earnings) multiples make them more affordable than US markets. The fed is potentially raising rates this year but might not because of the recent market volatility. This is causing uncertainty which is one of the reasons for the increased market fluctuation. This increase would be counter to federal reserve boards across the world, including China, which are lowering rates to increase their economic output. That said, our federal reserve still is operating at levels, since 2008, indicative of a crisis, so rates will need to rise as the economy continues to improve. There will always be growing pains and this fed uncertainty and the markets reaction is likely just that.
Concerns in Asia are taking control of the financial markets. Even though the US economy still remains relatively strong, the issues of Asia are temporarily affecting our news media and markets. China is leading the way down as their economic numbers are coming in lower than in recent history. Chinese data is hard to take seriously because of the level of control the government has over the economy and its economic reporting. This government control has been led many to believe there is manipulation in reporting. Is the not-good data even accurate? Is the economy worse than we think? Potentially. What is the impact for US and world markets? Mixed.
Factory activity fell to the lowest activity in China in 3 years. The S&P records the worst monthly drop since 2010. People are concerned about the slumping economic activity in China spreading to economies in Asia and around the world that depend on Chinese growth to purchase the goods they supply. Brazil, Vietnam, and others are all seemingly effected by this slowdown. Europe is being affected by the humanitarian crises of seemingly endless refugees and migrants coming from the war torn Middle East and Africa. All of this is certainly negative, and coupled with still low oil prices, is causing massive market fluctuations. The European economy is, however, finally gaining some strength and we are confident in the US economy and certainly hopeful about the economy after the next elections.
For many, this may be a great time to invest, but be cautious about how. Invest in the right mix of companies to maintain your investment objectives. Invest in strategies that can help balance risk. This is a difficult time in the news and that can be a good time to consider investments.
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Sources: Bloomberg, The Wall Street Journal, Barron's