Despite some hand wringing over what the Fed may, or may not, do in the months ahead, most market experts are forecasting continued - albeit moderate - growth for the U.S. economy, which is good news for investors and for Wall Street. Despite the fact that recent Conference Board Reports suggest that the growth momentum continues, some experts seemed reluctant to embrace a mood of optimism. Here's what some of the leading investment commentators are saying.
Many are bullish on growth, but recognize that (as per the Conference Board's Consumer Confidence Index
) consumers were a little less optimistic than they were at year-end. According to the Conference Board, consumers were heartened by an improved job market, but remained somewhat cautious. The research company's late January report on leading economic indicators, a gauge of activity over the next 6 to 9 months, was more positive. The findings point to "continued moderate growth or even a little acceleration" according to an official spokesperson. Despite the worries of the doomsayers, the housing slump that pulled GDP growth down in the second and third quarters of 2006 does not appear to be deepening. The Conference Board also made note that consumer income growth appears to picking up as wages increase, and that job generation appears to be holding steady. This modest income growth, combined with lower energy prices, "might spark a little more economic activity this spring" according to the Conference Board.
Some bearish analysts note the reluctance of certain economists and Wall Street gurus to concede that the economy is doing well, and to acknowledge that other sectors weathered the housing slump. Others expect more possible back-wash from the housing slump. They see escalating compensation at Wall Street firms and the lack of un-invested cash within the mutual fund sector as indicators that the market has peaked and is about to cool.
Their pessimism is at odds with the conclusions drawn by their more sanguine colleagues. These more bullish types expect to see stronger fourth quarter GDP numbers than predicted, and suggest that there is no reason this growth won't continue into the first quarter of 2007.
With even the bulls showing little willingness to move beyond modest predictions and with overall confidence levels remaining mediocre - despite a dazzling array of record-breaking Dow performances - its not surprising that individual investors feel confused. In times like these, the professionals suggest investors stay grounded in reality and consider the following tips:
- Recognize that risk is inherent in any stock market. Without volatility ( and stock price declines AKA "buying opportunities") returns would be virtually non-existent over time. The whole premise of a stock exchange is "buy low; sell high." Wealth can't be created without some volatility.
- Avoid knee-jerk reactions if your portfolio declines in value on a given day. Remember that the value ascribed to your other assets - home, car or collectibles - probably undergo similar daily ups and downs, too. The only difference is that you don't check on the resale value of your automobile every day. Smart investors are in it for the long haul and don't allow market declines to destroy their long-term faith in the market.
- Don't make decisions to rebalance your holdings when your emotions are running high. Neither exuberance nor exasperation serve you well when it comes to making good, rational decisions.
- Get help to develop an investment strategy geared to your specific needs. A financial advisor not only offers expertise and experience, but also can provide perspective to help an investor avoid snap decisions and self-sabotage.