As 2019 begins, two new surveys suggest that both advisors and economists aren’t so optimistic about where the economy is headed.
This kind of insight from industry experts is useful, but especially to those who are approaching retirement. Knowing what pundits and advisors believe could lie ahead, and exploring what action can be taken in case of any untimely disruptions to their portfolios, is critical to those within five to 10 years of retirement.
So, what do advisors and economists see when they look ahead? They see the shakiness of 2018 leading to a potentially rocky 2019.
What Just Happened?
While your 401(k) or retirement plan surely felt the impact of the volatile 2018 stock market, recapping the year can show us just how volatile it was and how we got to our current sense of unease.
Writing in his financial blog, A Wealth of Common Sense, Ben Carlson, CFA, compares 2018 to 2017 with alarming clarity. Among the findings he recaps:
- 2017 saw 62 new all-time highs of the S&P 500. By contrast, 2018 logged just 18 new all-time highs.
- The maximum drawdown from peak-to-trough was -2.8% in 2017, one of the lowest intra-year losses in history. In 2018 that figure was just short of 20% (and occurred over a period of less than three months). Plus, there was a 10% correction earlier in 2018.
- There wasn’t a single down month in 2017, which has never occurred in the history of the stock market. In 2018, however, there were 4 down months, all with relatively large drops (-3.6%, -2.8%, -6.8% and -9.0%).
Carlson says, “Looking at the differences in the stock market between 2017 and 2018 can be instructive because it shows the Dr. Jekyll and Mr. Hyde nature of investing in equities.”
Looking into the Future
InvestmentNews surveyed 371 advisors for the year-end survey it just released. Among other questions, the respondents were asked to name the biggest issue facing the financial advice industry in the year ahead.
The highest number of respondents (28%) ranked uncertainty over the U.S. political system as their top concern.
In a follow-up question designed to measure how strongly they felt, advisors were asked to rank their level of concern from “not concerned” to “extremely concerned.” Relating to their concern about the U.S. political climate, more than 50% of advisers said they are either “very concerned” or “extremely concerned” about the situation.
Geopolitical Tensions Also a Concern
The survey found that another source of advisors’ concern over the nation’s economic prospects is geopolitical uncertainty, which respondents believe could slow the U.S. economy in the year ahead.
Our ongoing trade dispute with China, which is America’s largest trading partner, influenced the 38% of polled advisors who said they believe the economy will decline in 2019. In the survey 23% expect the economy to be on par with 2018 and 27% believe it could improve slightly.
When they were asked if they anticipated a recession in the next three years, a majority of advisors (68%) answered “yes.” Of those who are predicting recession, 28% believe it will begin in the second half of 2019. A larger share, 44%, see it occurring some time in 2020, leading up to the next presidential election.
One advisor summed up how he shares his market view with his clients: “At year-end meetings with clients, I have been expressing concerns about what I’m seeing, and I’m setting the bar kind of low because we’re overdue for a market correction.”
Economists Also See Economic Clouds Forming
The Wall Street Journal recently conducted its first monthly poll of economists for 2019. The poll found that economists believe there is a 25% chance that our economy will enter a recession within the next 12 months. It’s the highest percentage in seven years and almost double last year’s figure of just 13%.
Economists counted several contributing factors, including:
- The China trade war,
- Rising interest rates,
- December’s dramatic equity selloff, which was the worst year for stocks since the financial crisis.
And the year 2020 may have rough times ahead. In the survey, 56.6% of the economists predict a downturn at the start of the election year.
No matter when the expected recession begins, a substantial 84% of the forecasters see a worsening U.S. economy. While this is equal to their December sentiment, it’s up sharply from 53% who felt this way as recently as October.
As far as a recession trigger point, economists are concerned about a shock to the market that could result from an escalation in the trade war. In turn, that could result in both businesses and consumers reigning in their spending, further stressing the economy.
Protecting Yourself from an Uncertain Horizon
Investors who are within five to 10 years of retirement should consider how these economic possibilities could impact their financial future.
It might be time to consider taking a more defensive position with your nest egg. No one wants to reach the cusp of retirement trying to play catch-up with their asset recovery.
What new strategies might you consider that would help you protect yourself from stock market and economic uncertainty? Consider seeking guidance from a financial professional. They can help you explore different options for asset protection, lifelong retirement income, tax burden mitigation, and other financial security-bolstering strategies.
The end goal? To help you start retired life on the right foot and build confidence in your ability to achieve your ideal retirement lifestyle. If you are ready for help, financial professionals at HFHanes.com can assist you.
Get in touch with an independent financial professional at HFHanes.com to explore some potential income and wealth protection strategies for you. And should you have any questions, please call us at H.F. Hanes & Associates at 480-607-1346 or 888-416-(LIFE).