I’m up in Washington D.C. this week at Impact 2018, Schwab’s huge annual investment conference that gathers thousands of investment advisors, vendors, and experts from across the U.S.
It’s actually great timing given this week’s turmoil in the stock market. We’ve had multiple conversations with economists and market strategists about inflation, rising interest rates, and the likelihood of recession. This afternoon’s discussion with Former Fed Chair Janet Yellen was one of the conference highlights.
Here’s 7 quick investment takeaways from Impact 2018
1). Big surprise! Economists and analysts don’t entirely agree about what’s on the horizon. That lack of clarity means we’ll need to watch the data and course-correct as we go.
2). It is pretty clear that interest rates are going up. You should expect one more rate hike this year and two to four next year, depending on whether the economy slows more on its own (two rate hikes) or looks like it’s overheating (four rate hikes). These changes in the bond world have distinct implications for your portfolio, and where you’ll want to invest. We’re adjusting bond strategies accordingly.
3). Inflation, right now, is a no-show. But it may start perking up if the tight job market pushes up wages.
4). The economy is fundamentally strong, in fact, maybe a little too strong. “There’s nothing not to like in the economy,” said Yellen. But dangerously low unemployment (yes, that is a bad thing) could cause the economy to overheat and run above capacity, forcing the Fed to step in and push more rate hikes to slow it down.
5). The market turmoil is due, in part, to these disagreements about where the economy is going. There are both upside opportunities and downside risks, said Yellen, and the market is trying to sort out the likelihood of each scenario. One concern? Global conflicts over trade are a serious threat, as are deteriorating relations with China. “Trade could tip us into recession faster than you think,” argued Liz Ann Sonders, Schwab’s chief investment strategist, although she noted recession risks in the U.S. are still low, but rising.
6). Some good news? Although interest rates are rising, future climbs should be moderate, and the worst may already be behind us. Conservative savers and bond investors will be able to earn more on their money, although overall rates will remain low by historical standards.
7). If there’s a recession, it probably won’t arrive before 2020. And it may not be long or deep. If we are lucky, there may not be a recession at all, said Yellen, turning the current period into the longest economic expansion in history. One thing is for certain. We are transitioning to a new and challenging investment climate, and it’s one calling for a more cautious approach. We’ll be making adjustments to both stock and bond portfolios to help you thrive in the new environment.