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By Rich Weiss - February 28, 2019
Let me make one thing clear: I’m not predicting a recession this year. But I am taking note of some signals I see in the market, and in the broader economy.
The brightest flashing red light I see is slowing economic growth. Experts are tempering their expectations for the U.S. economy for 2019, and also 2020. This makes me wonder where—and, in the short-term, if—the equity markets will find an updraft to lift stocks.
But none of this has me in panic mode. In fact, I see some evidence that we could be in for a “soft landing” as opposed to a major market correction. Check out my latest video to find out why I think so, and what that means for investors.
For 2019, we see it as a year that could have a split personality. Very likely, the first half of the year may look drastically different than the second half.
The first half of the year, we’re searching for a bottom. Once that’s found, for the second half of the year, we’re liable to be in recovery mode. You can’t deny the economic cycle. Although it has been nine years since we’ve seen the last market downturn and economic recession, it looks like we’re hitting a turn in the cycle. Now we’re not looking for a recession in the near future, but clearly the markets have gotten very skittish.
Perhaps more importantly, economically it’s not clear where we’re headed. Growth is slowing, which is what the markets are arguably seeing out 6-12 months from now. By all the metrics we look at—and we look at many different ways of determining market valuation, it appears the equity market in the U.S. is marginally undervalued. That it’s slightly cheaper. It’s a bargain.
That doesn’t mean one should run in and buy equities. Of course, it depends on your individual situation, your age, where you are in life, your consumption needs, your risk tolerance, etc. There are many different factors that determine the future path of the stock market. Valuation is only one of those factors.
There are also macroeconomic factors and technical, or market momentum, factors that come into play. And those other factors are not screaming “buy” right now for the equity market.
The major economists continue to ratchet down their expectations for 2019 and, more importantly, 2020. It is not clear that we’ve hit a bottom yet, despite the fact that the market may appear “undervalued” to some extent. Slower growth numbers are no reason to panic. And it’s not necessarily the case that we’re going to run head-first into a recession this year or next.
There could be, and there’s a lot of evidence to support the notion, that we may be in for a soft landing as it’s called in the marketplace. And so growth slow, it doesn’t necessarily become negative. Therefore, the equity markets are just issuing a warning signal that the raging bull market of the last nine years coming out of the 2008 debacle is over, and we’re into a slower growth environment, which could last for a couple of years perhaps without a recession. The Federal Reserve, obviously, is responding to that. They may be taking a pause in their procession to raise interest rates because of this very fact. They do not want to push us into a recession this coming year. So, a decelerating growth environment, economically speaking, is not necessarily a sell signal.
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Portfolio Manager Prabha Ram is focusing on companies that have sustainable growth in their mix as she looks at investments for the rest of 2019.
The market environment may be tough for value investors, but Sr. Portfolio Manager Mike Liss sees opportunities in three undervalued sectors.
After a rough second half of 2018, we've seen a notable turnaround in 2019. How much longer can it last?
April 8, 2019
American Century Investments' CIO Rich Weiss nevertheless believes we're beyond the proverbial "bottom of the ninth" for the current bull market—and into extra innings.
November 19, 2018
Multi-Asset CIO Rich Weiss describes 2019 equity markets as likely having a split personality—one for the first half, and another for the second.
February 28, 2019
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The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
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