For many years, we have written about how an investor may get lost in the news when trying to understand what is going on in the economy and in the stock market. CPS most recently shared:
All the noise can make it difficult to understand what’s happening in the economy. In the long run, fundamentals drive the stock market. Understanding where the economy is headed will help you understand the long-term outlook for stocks.
The Coronavirus pandemic is still lingering, there is now a war going on overseas and an upcoming election, and talking heads on television are discussing bond yields and unemployment. All very similar headlines to 2020 with some new ones added in.
So Where is the Economy Headed and What Should We Look for Next?
As an investor, one should look to the fundamentals of the companies in which you are invested in. Ask yourself these crucial questions: 1) should I sell this great company, 2) should I buy more of this great company, or 3) should I do nothing because my financial plan has not changed?
What Do You See as You Walk Around?
Even with all the noise, are people still buying gas? Yes, albeit at a higher price per gallon. Are people still buying real estate, paying their utility bills, buying groceries, using their prescription medication, and banking with an institution? I could ask a few more questions, but you understand where the story is going.
When you invest in companies that people need during good times and during ‘bad’ times, then you own durable companies.
I was recently traveling for both leisure & business and my first trip was to Las Vegas. Yes, that was for leisure as I was attending the Annual National Bowling Tournament and the USBC Hall of Fame induction dinner. To see some of the greatest bowlers of all time accept the award, was quite amazing.
The flight there was oversold. The dinner was sold out both nights. The hotel was at capacity for the first time since 2018 – with no comps available! During my time there, the NFL draft was also taking place with a record crowd of about 650,000 attendees just on the first night alone. You could not find a taxi or an Uber, and when you did, all prices were at a premium.
My second trip was for business, and again, the flights were oversold. There were two cars left in the rental car lot and all the restaurants had a waiting list each evening. The Houston traffic was as bad as what we experience here on I-4. All to confirm consumer demand is certainly thriving.
These are examples of walking around sense, and as you’re walking around, what sense of the economy do you make?
The moral of the story is people are spending money. When people spend money, companies are selling their products. When companies sell products, they generate earnings. When they generate earnings, good things happen in the economy.
Instead of focusing on what you’re hearing in the news, make sure your financial plan is in order. I recommend you schedule a financial checkup with your advisor to confirm your beneficiary designations are up-to-date, that your accounts are registered correctly, that your investments meet your risk tolerance, and that you’re maximizing your tax efficiency. All to ensure you can sleep easy at night knowing what you own and why you own it.
Anthony M Corrao | CFP®