Though reaction on a personal level to the political machinations of the White House and Congress is understandable, investors seem impervious. They did not react to the bombing in Syria as one would have expected, or to the election in Norway, or to the beginning of Great Britain’s exit from the Euro, or even to the Fed’s interest rate increase. The market remains remarkably sanguine.
Today’s reality is that global economic growth is in sync and improving. According to many researchers, it should remain so over the next 6-12 months (barring anything unforeseen). This is positive news for stocks and bonds. As Janet Yellen, Fed chair, said, “The simple message is the economy is doing well.”
The Economist noted that across the United States, Europe, Asia, and emerging markets, “all burners are firing at once, for the first time since a brief rebound in 2010.”
By most measurements, the U.S. stock market is overvalued, with estimated returns in the low single digits over the next five years. Our stock market is the most expensive it has ever been in the last 50 years, except during the dot.com bubble in the late 1990s.
Alternatively, international stock markets have lagged domestic markets. Numbers now show international companies growing faster than domestic companies.
We have re-allocated portfolios to lower exposure to the U.S. stock market and increase investments in international and low-volatility funds. More than eight years have passed since the last major downturn, and we are all expecting a decline to occur. We just don’t know when. Our goal in portfolio design is to limit the impact of such an event, though there are never any guarantees.
Please call us if you would like to discuss your portfolio, update, or create a financial plan.