Council Post: Investing During Times Of Uncertainty

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At the end of 2019, the Dow Jones remained 28,538 points, and life was much different than it is today. Fast forward nearly two years, as of this writing, the Dow Jones is up nearly 6,000 points from its 2019 highs. In 2021, S&P 500 hits record high 54 times By the beginning of September – the highest in the same period since 1995.

Despite this remarkable rally, there have been a number of big, emerging headlines creating uncertainty in the financial markets.

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current state of uncertainty

There are many macroeconomic factors influencing today’s market uncertainty. It appears more likely that China will not bail out major real estate developer Evergrande, although it is unclear what is. potential economic consequences Its imminent bankruptcy. Many think the United States will be saved from any repercussions, while others note heavy fund outflow From BlackRock and Fidelity.

Things are uncertain at the domestic level as well. The Federal Reserve is still indicating it will continue overnight Lending rate close to 0% In the near future – although rates will certainly increase eventually. There is no clear direction on when the Federal Reserve will begin reducing $80 billion in Treasury securities and $40 billion in mortgage-backed securities. bought every month, Lastly, you can’t forget about the price hike. Fed Chairman Jerome Powell’s recent comments indicate inflation may last longer than expected,

Traditional Opportunities During Uncertainty

So where does this leave investors — where can they find opportunities during times of uncertainty? Starting with equities, both health care and consumer staples — sectors that require spending regardless of economic conditions — typically perform well during times of uncertainty. During the 2020 financial crash, the S&P 500 suffered year-over-year losses 11.2% until the beginning of May. Over the same period, the consumer staples category was down only 8.6% and health care was down only 2.1%. While small cap stocks generally government when recession ends, they have historically been greatly affected during economic downturns.

Fixed income investments have also been popular during recessions. Still, on the equity side, there’s recent history that proves this isn’t ideal, at least if investors are most interested in dividend yields. As companies look to reduce risk and preserve cash, cutting or eliminating dividends is common. In 2020, year-on-year dividend $42.5 billion dropped In the second quarter, the biggest annual decline since the first quarter of 2009. As for bonds, most major bond indexes outperformed the S&P 500 during the 2008 financial crisis. From early 2008 to mid-2009, Businesshala Barclays Corporate Bond, Treasury Bond, US Aggregate and Municipal Bond Indexes all posted positive returns, Over the same period, the S&P 500’s return was -36.49%. However, keep in mind that in response to the Covid-19 recession, the bond market is volatile. historically bad year in 2021.

Alternative Opportunities During Uncertainty

Alternative investing has proven to be an interesting diversification hedge in a downturn. Throughout its short existence, the cryptocurrency has not experienced a “normal” economic downturn. However, bitcoin is naturally diverse — It represents wealth across all borders and is not tied to the economy of any one country. While the United States, the European Union, and Japan experienced economic downturns from 2007 to 2009, many developing countries – including those potentially most dependent on cryptocurrencies – expanded financially during this time.

Additionally, research shows that some investments in crops, metals, and other tangible goods are inversely related to traditional investments. Silver was at $14.76 an ounce at the end of December 2007. Although the price fluctuated over the next several years, the price of silver Landed at $13.94 per ounce At the end of the Great Recession. Precious metals have also proved to be solid investments emerging from the economic downturn. For example, between September 2010 and September 2011, Gold prices jump 50.6%, However, it is important to note that not all physical goods perform well during recessions, as the price of a barrel of crude has fallen. $133.88 to $39.09 . till in 2008.

Farmland, a new accessible asset class, has historically been a strong negative correlation For equities and bonds, the experience continues Valuation Increases During the last year and profit from Increase in food demand and increase in food prices From 1995 to 2019, during economic uncertainty, US farmland gave an annual return of 11.51% With 7.08% standard deviation. When viewed on a granular level, agricultural land performed remarkably strong during the last market downturn; Assets delivered an average annual return of 5.3% during the dotcom recession of 2000-2002, 15.8% during the Great Recession of 2008, and 6.7% during the economic downturn in 2018.

While the uncertainty is high both domestically and globally, the opportunities for investors through both traditional and alternative options are also immense.

The information provided here is not investment, tax or financial advice. You should consult a licensed professional for advice regarding your specific situation.

Businesshala Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. am i eligible?


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