Our culture has conditioned us to gravitate towards negative news. Why? Part of the answer lies in the human condition where we are prone to worry about the future. But the media is certainly not doing us any favors. TV news and other news outlets have a goal to grab and hold your attention. They do this by upsetting you. The media outlets want to encourage you to have a grim outlook about the stock market and the economy with the selfish intent of keeping you on their TV channel, app, or website for a longer period time.
While there are a number of issues in today’s world to be concerned about (and there always will be!), we wanted to share 10 reasons you should be optimistic about the economy and the financial markets:
1. Inflation is moderating: You have probably seen and heard the recent inflation numbers. Inflation as measured by the Consumer Price Index (CPI) has moved from down to 3% as of June 2023. This is much lower than this time last year. While great progress has been made, the fight is not over yet.
2. Companies are great at passing along costs: If inflation has pushed prices higher at your grocery store; this is proof that the company is passing along their increased cost to the consumer. In theory, this allows companies to not just protect their margins, but also potentially increase earnings.
3. The United States is a net oil exporter: According to the U.S. Energy Information Administration, the U.S. was a oil exporter in 2022. This bodes well for our economy and national security.
4. The Federal Reserve is not run by dummies: While trustworthiness of government officials is at an all-time low (and for good reason), the men and women of the Federal Reserve have a gameplan. While they are not perfect and history is full of mistakes made as it pertains to interest rate policy, they have the goal of cooling inflation and not wrecking the economy. It is a delicate balance and we are of the opinion we are in the 9th inning of the Fed increasing interest rates.
5. Companies know how to cut costs: As inflation-weary consumers begin to resist price hikes, companies may look to support bottom line earnings by streamlining operations and finding long-term cost savings through measures like automation, energy efficiency, and supplier negotiations. And as you have probably read in a number of articles this year, layoffs (specifically in the tech sector) seem to be yet another tool companies are using to cut costs.
6. The U.S. dollar is the world reserve currency: The reserve status is based largely on the size and strength of the U.S. economy and the dominance of the U.S. financial markets. Despite our government spending too much money each year, U.S. Treasury bonds remain the safest way to “store” money. The trust and confidence that the world has placed in the United States to pay its debts keeps the U.S. dollar as the world’s reserve currency. This drives down the cost of global commerce for American companies.
7. History tends to repeat itself: When we look back at history, the public stock market has been one of the best ways to grow your wealth. Obviously, past performance is no guarantee of future results but we do not see this trend changing in the short-term.
8. Lower interest rates might be coming: While this might sound like a negative for bond investors, the price of bonds will move higher if interest rates move lower. Historically, the stock market also benefits if interest rates move lower.
9. Freedom: America continues to be the most sought after country to move to around the globe. While our laws and country are not perfect, America has given its citizens more opportunities than any other country over the past 100 years.
10. The big get bigger: Sometimes clients ask if tech companies can continue to grow – it is a very good question. As we’ve seen tech stocks recover this year after declines in 2022, these large companies continue to innovate, spend heavily on research and development and lean into growth areas (most recently and notably, artificial intelligence).
Bottom line…. we continue to be prudent with our process to manage risk for clients within their investment portfolio. As discussed, we believe there are reasons to be optimistic. While the market will continue to have pullbacks along the way, we think the future continues to be bright for long-term stock investors.
About the Author
Matt Price serves as a Partner and Managing Director for The Price Group of Steward Partners. He resides in Houston with his wife, Emily, their four children and "Fisher" the family golden retriever. Matt studied at the University of Pennsylvania – Wharton School of Business for his Certified Investment Management Analyst (CIMA®) designation after receiving his undergraduate degree from the University of Tennessee - Knoxville. Over the past 12 years, Matt has helped families make high quality, common sense decisions regarding their wealth and their legacy. Matt firmly believes everyone needs a wealth coach!
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1 https://www.nytimes.com/2023/05/30/business/economy/inflation-companies-profits-higher-prices.html
2 https://www.wsj.com/articles/companies-start-to-lean-more-on-cost-savings-amid-persistent-inflation-11653912001
3 https://www.wsj.com/articles/as-big-techs-growth-and-innovation-slow-its-market-dominance-endures-11675871487
The views expressed herein are those of the author and do not necessarily reflect the views of Steward Partners or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.
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