Tweet
Mitch Zacks answers this question: When is the next big downturn is going to arrive?
Zacks Investment Management <[email protected]>
Aug 1 at 5:20 AM
Sal B. from Wildwood, NJ asks: Hi Mitch, thanks for taking my question. I’m sure it’s one you get all the time, but my wife and I are wondering when you think the next big downturn is going to arrive? It seems like the economy is in really good shape now, but that’s actually what worries us the most. We’ve always been blindsided by the downturns.
Mitch’s Response:
Thanks for writing, Sal. Your question is one that’s on pretty much all investors’ minds all the time, so I’m glad you asked.
Let me first start with the comment about the economy being in good shape – a point that in my opinion is spot-on. An “advance” estimate from the Bureau of Economic Analysis showed that the U.S. economy grew at an annual rate of +4.1% in the second quarter, up from a 2.2% increase in Q1. “Advance” estimates are notoriously wrong, so I’d expect the number to be adjusted up or down once the BEA gets to its final calculation. But the point here is that if the final number is anywhere near 4.1%, we should be very pleased with growth. It would mean the highest GDP growth rate since 2014.1
How Can You Prepare for the Next Bear Market?
Instead of getting caught up in the ever-changing headlines of when the next bear market or downturn will be, focus on YOUR financial situation. This can be more beneficial in the long-term in my experience.
This involves understanding your long-term goals, your risk tolerance, your investment time horizon and other factors that make up your financial situation. To help you do this I recommend reading our guide, “4 Steps for Managing Your Retirement Assets.”
We believe the corporate earnings picture is equally compelling. The blended Q2 earnings growth (blending the reported with the unreported) as of July 27th was +23.6%, which is pretty much on par with last quarter’s solid +24.6% growth rate. But given the momentum we have seen from the 265 S&P 500 members that have reported already, both in terms of growth as well as positive surprises, we can see Q2 earnings growth moving past the Q1 level as the remainder of this earnings season unfolds. What’s more, the standout feature in earnings reports for Q2 is revenues, both in terms of growth rates as well as the proportion of companies beating revenue estimates. Earnings get help from factors like tax cuts. Revenues get help from strong demand and a strong global economy.3
I know I deviated from your question a bit, but I think you see my point here. The risk of recession today, in my view, seems pretty low. And in the absence of a recession, it’s difficult for me to envision a steep downturn unless some extraneous event occurs out of the blue. But, you cannot really base your investment strategy on wild guesses about potentially damaging events. Especially with the U.S. economy and corporate America doing so well, in my view.
That being said, I do think there are actions you can take to prepare for the next bear market. The first is to really take a close look at your current asset allocation and to ensure that it is aligned with your goals, long-term objectives, and your tolerance for loss. The last one I mentioned – tolerance for loss – I think may apply to your situation in particular, Sal. The fact that you wrote about being blindsided by downturns gives me the impression that mitigating your losses in the next downturn is an important objective for you. Often times, we see folks who need long-term growth but simply cannot live with the idea that a bear market could inflict losses that may take a few years to recover. If that’s you, then there are certain actions I think you could take in your portfolio, like allocating more to cash and/or fixed income. Or maybe even tilting some of your equity holdings to categories like value and dividend stocks.
At the end of the day, your asset allocation, in my view, can be tailored in such a way that it fits your risk profile and also addresses your income and retirement needs.
There are many additional steps you can take to prepare your investments for the long term and with that the potential of another bear market. Since 1992, my team and I at Zacks Investment Management have helped thousands of people plan their financial future with success and confidence. To give you some insight into how we do this, we have outlined several of these key steps in our guide, “4 Steps for Managing Your Retirement Assets4.”
This guide gives you a step by step look at what you can do to plan your financial future with confidence. If you have $500,000 or more to invest, click on the link below to get your free copy.
Have an investing question? Send your questions to Mitch Zacks at [email protected]
ABOUT ZACKS INVESTMENT MANAGEMENT
Born from Research – Built for Performance
Zacks Investment Management was born out of one of the country’s largest providers of independent research, Zacks Investment Research. Our independent research capabilities from our parent company truly distinguish us from other wealth management firms - our strategies are derived from research and innovation, including the proprietary Zacks Rank stock selection model, earnings surprise and estimate revision factors. At Zacks Investment Management, we work with clients with $500,000 or more to invest, and we use this independent research, 35+ years of investment management experience, and tools we’ve developed to design customized investment portfolios based on each client’s individual needs. The end result is investment management that is research driven, results oriented and client focused.
Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.
This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.
Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.
Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.
Questions posed are for demonstrative and informational purposes only and may not reflect the views of current clients or any one individual
Zacks Investment Management
227 West Monroe St.
Chicago, IL 60606
Zacks Investment Management <[email protected]>
Aug 1 at 5:20 AM
Sal B. from Wildwood, NJ asks: Hi Mitch, thanks for taking my question. I’m sure it’s one you get all the time, but my wife and I are wondering when you think the next big downturn is going to arrive? It seems like the economy is in really good shape now, but that’s actually what worries us the most. We’ve always been blindsided by the downturns.
Mitch’s Response:
Thanks for writing, Sal. Your question is one that’s on pretty much all investors’ minds all the time, so I’m glad you asked.
Let me first start with the comment about the economy being in good shape – a point that in my opinion is spot-on. An “advance” estimate from the Bureau of Economic Analysis showed that the U.S. economy grew at an annual rate of +4.1% in the second quarter, up from a 2.2% increase in Q1. “Advance” estimates are notoriously wrong, so I’d expect the number to be adjusted up or down once the BEA gets to its final calculation. But the point here is that if the final number is anywhere near 4.1%, we should be very pleased with growth. It would mean the highest GDP growth rate since 2014.1
How Can You Prepare for the Next Bear Market?
Instead of getting caught up in the ever-changing headlines of when the next bear market or downturn will be, focus on YOUR financial situation. This can be more beneficial in the long-term in my experience.
This involves understanding your long-term goals, your risk tolerance, your investment time horizon and other factors that make up your financial situation. To help you do this I recommend reading our guide, “4 Steps for Managing Your Retirement Assets.”
We believe the corporate earnings picture is equally compelling. The blended Q2 earnings growth (blending the reported with the unreported) as of July 27th was +23.6%, which is pretty much on par with last quarter’s solid +24.6% growth rate. But given the momentum we have seen from the 265 S&P 500 members that have reported already, both in terms of growth as well as positive surprises, we can see Q2 earnings growth moving past the Q1 level as the remainder of this earnings season unfolds. What’s more, the standout feature in earnings reports for Q2 is revenues, both in terms of growth rates as well as the proportion of companies beating revenue estimates. Earnings get help from factors like tax cuts. Revenues get help from strong demand and a strong global economy.3
I know I deviated from your question a bit, but I think you see my point here. The risk of recession today, in my view, seems pretty low. And in the absence of a recession, it’s difficult for me to envision a steep downturn unless some extraneous event occurs out of the blue. But, you cannot really base your investment strategy on wild guesses about potentially damaging events. Especially with the U.S. economy and corporate America doing so well, in my view.
That being said, I do think there are actions you can take to prepare for the next bear market. The first is to really take a close look at your current asset allocation and to ensure that it is aligned with your goals, long-term objectives, and your tolerance for loss. The last one I mentioned – tolerance for loss – I think may apply to your situation in particular, Sal. The fact that you wrote about being blindsided by downturns gives me the impression that mitigating your losses in the next downturn is an important objective for you. Often times, we see folks who need long-term growth but simply cannot live with the idea that a bear market could inflict losses that may take a few years to recover. If that’s you, then there are certain actions I think you could take in your portfolio, like allocating more to cash and/or fixed income. Or maybe even tilting some of your equity holdings to categories like value and dividend stocks.
At the end of the day, your asset allocation, in my view, can be tailored in such a way that it fits your risk profile and also addresses your income and retirement needs.
There are many additional steps you can take to prepare your investments for the long term and with that the potential of another bear market. Since 1992, my team and I at Zacks Investment Management have helped thousands of people plan their financial future with success and confidence. To give you some insight into how we do this, we have outlined several of these key steps in our guide, “4 Steps for Managing Your Retirement Assets4.”
This guide gives you a step by step look at what you can do to plan your financial future with confidence. If you have $500,000 or more to invest, click on the link below to get your free copy.
Have an investing question? Send your questions to Mitch Zacks at [email protected]
ABOUT ZACKS INVESTMENT MANAGEMENT
Born from Research – Built for Performance
Zacks Investment Management was born out of one of the country’s largest providers of independent research, Zacks Investment Research. Our independent research capabilities from our parent company truly distinguish us from other wealth management firms - our strategies are derived from research and innovation, including the proprietary Zacks Rank stock selection model, earnings surprise and estimate revision factors. At Zacks Investment Management, we work with clients with $500,000 or more to invest, and we use this independent research, 35+ years of investment management experience, and tools we’ve developed to design customized investment portfolios based on each client’s individual needs. The end result is investment management that is research driven, results oriented and client focused.
Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.
This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.
Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.
Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.
Questions posed are for demonstrative and informational purposes only and may not reflect the views of current clients or any one individual
Zacks Investment Management
227 West Monroe St.
Chicago, IL 60606
Comment