Lower for Longer

Note: This market review was published on April 26, 2016 and may not be reflective of current market or investing issues.

In 2009, Carmen Reinhart and Ken Rogoff wrote a book entitled This Time Is Different, a play on the theme that it is never completely different, but usually very similar.  Essentially, this is a volume of financial crises statistics, dating back several centuries and including sixty-six countries.  Their prediction was, because we have suffered a credit crisis, it would take ten years or more for the global economy to get back on track.  Well, we are going on eight years and while the United States is slow but growing, most other large developed economies are a mess and their central banks are still hard at work trying to stimulate through monetary policy.  Even though Federal Reserve Chair Janet Yellen and other Federal Reserve governors passed on a chance to raise interest rates last September, after an August stock market mini-meltdown, they did finally raise rates by 0.25% in December.  Their projections at that time were to raise rates four more times in 2016, but after a New Year’s meltdown of almost 11% on the S&P 500, sanity has taken over and now it appears they may raise rates only twice this year.  Why, you ask, is this important?  Our Federal Reserve Bank has just two explicit mandates:  maximizing employment and stabilizing prices, with a third mandate of moderating long-term interest rates.  Unemployment is 5.0% and job growth has been strong, even showing mild signs of wage growth, and some signs of inflation are beginning to creep in.  So what gives?  Mrs. Yellen cites “fragile” global growth and she is probably correct to keep our interest rates lower for longer to help boost growth with our global trading partners, especially Europe.

In addition to interest rates staying low, most predictions for global stock market growth is much lower than normal, anywhere from 3 to 5% in the United States, slightly higher in countries whose asset prices have not appreciated to the high levels that ours have.  Predictions are that this may last 5 to 10 years.  In most developed countries, economic stimulus has boosted risk asset prices to high levels and corporate earnings have just not been able to keep up.  So we probably can expect lower for longer with stock and bond returns as well.  So is there anything going up?  Volatility, of course!  It appears that the next few years may give us, to quote Goldman Sachs, “wild markets, tame returns”.  Hold on to your hat!

Disclosure: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by  Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available upon request.