Conflicting Signals Trip up Investors

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Special Guest Blogger: Tim Kearney

U.S. economic growth slowed more than initially reported in the fourth quarter. GDP advanced by 2.2% rather than 2.6%, as business fixed investment was trimmed down from 3.9% to 3.1% and consumer spending revised to an increase of 2.5% from 2.8%. A moderation of growth is not a recession and investors may be more pessimistic than warranted. Uncertainty surrounding China trade relations, Brexit negotiations and a slightly inverted yield curve will continue to weigh heavily on investors’ minds.

On the flip side, the Federal Reserve has made clear it is on hold. Recent initial jobless claims have come in close to historic lows, suggesting a robust employment outlook for consumers, the mainstay of the economy. These conflicting signals have resulted in a somewhat sideways market over the last month, after two months of strong advances. Despite the ups and downs, the S&P 500 index has gained about 20% from its lows in late December. The volatility makes market timing especially difficult.

Consider this latest study from Dalbar reported in Financial Advisor magazine on March 26, 2019:

• Investors lost 9.42% over the course of 2018, compared with a 4.38% retreat by the S&P
• In October 2018, a bad month, the S&P return was -6.84%, while the average equity investor return was -7.97%
• In August, a good month, the S&P return was 3.26%, while the average equity investor return was 1.8%
• According to its research, the average investor consistently earns “much less” than market indices suggest

Global Perspectives advocates broad global diversification to help smooth market bumps and resist temptation to time volatile markets.

Please see an example of a globally diversified portfolio on page 5 of the Global Perspectives book.

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