Weekly Market RecapThe Federal Reserve (Fed) met this week and unanimously decided to hold interest rates constant after raising them for the first time in almost a decade last month. The Fed saw strength in many areas of the US economy including the labor market, household spending, business investment and housing. Counterbalancing this, the Fed saw declining exports and slowing inventory investment, and also noted that US economic growth slowed late last year. Overall, the Fed's view on the US economy is positive, and is still expecting to see the economy expand at a "moderate pace". The Fed's relatively positive outlook stands in contrast to the recent volatility we've seen in many financial markets. Part of this may be because the areas that appear to have caused concern in the markets recently, such as Chinese growth, are less immediate concerns to the Fed given their domestic mandate. On the other hand, as the economist Nouriel Roubini has quipped, the stock market has predicted "twelve of the last eight recessions". What this means is that even though the stock market can be a leading indicator of economic decline, it can also be misleading. Historically, there have been several downturns in the stock market that wrongly forecasted a coming recession. In fact, at times, these downturns lead to several years of continued growth. Just as the stock market can be ineffective at forecasting, so can many experts. For example, research by Prakash Loungani from the International Monetary Fund has highlighted that many economists have a dismal record of forecasting recessions, such as failing to predict the 2008-9 recession even in September 2008 when it was in progress. This is one reason why we aim to design our asset allocation for the long-term rather than make frequent adjustments based on short-term predictions. Notes: Disclaimer: Your Portfolio Summary
Ways To Improve Your Portfolio
| |||||||
| |||||||
No comments:
Post a Comment