Two Federal Reserve officials said, Thursday this week, that the economy was likely to avoid a severe downturn because of timely intervention by the central bank last year. One of them said there is a “reasonable chance” of achieving a soft landing for the U.S. economy this year, despite the renewed tension in the Middle East, and the other said a recession wasn’t in his forecast. Last year, the Fed saw signs that the economy was slowing and shifted course, eventually cutting its benchmark policy rate by three quarter-percentage moves at successive meetings.
The optimism was echoed in a report from Goldman Sachs earlier this week which stated that “The U.S. has become largely energy independent, Federal Reserve officials have been more vexed by a lack of inflation, and the financial system has become less levered since the crisis. A tight labor market, easy Fed policy, institutional risk tolerance, as well as potential further fiscal stimulus and certain debt growth all bode well for another strong year in the stock market.”
And, markets were solidly higher this week.
Future Wealth’s View
We had, just last week, stated in our article that our confidence in the Fed has prompted us to become more aggressive in our investments for our clients this year. And it is good to hear that members of the Fed publicly stating that the economy is on the right track. We would argue that the economy is in good hands – at the Fed.
Of course, some pundits are voicing their opinions that a pullback is imminent and few others are stating that such a pullback will be the time to put more money into the market and that it not wise to invest more into the market now. What they may not realize is that U.S. stocks may frustrate investors looking to buy at lower prices this year.
The S&P 500 Index’s performance on a total-return basis, including reinvested dividends, in post-World War II election years shows that retreats of 10% or more, occurred only half of the time during those years. And so, there you have it – you have a 50-50 chance of a pullback this year.
Its now your turn to flip the coin.