(Brookstone Capital Management) Equity markets have declined after nonfarm payrolls and PMI readings missed expectations. Analysts expected hiring of 426K, instead they got 199K.
That being said, it’s worth noting that the prior two months were revised upward by 140K, making the overall shortfall much less severe. PMI numbers disappointed by significant margins as well, but again it’s worth noting that while both manufacturing and services figures came in under expectations, both readings came in well above the expansionary hurdle.
In spite of the less-than-stellar economic data, the economy is still recovering well from pandemic lockdowns. The biggest threat to the economy remains inflation, and the Fed now appears to be taking the threat more seriously.
Overseas, developed markets outperformed emerging markets, with both indices returning negative performance. European indices were mixed, while Japanese markets returned positive performance. Improving prospects against the pandemic as well as improved prospects for economic recovery should continue to help lift markets globally over time, but macroeconomic factors such as inflation and supply shortages threaten markets everywhere.
Equity markets were mostly negative this week as investors continue to assess the state of the global economy. While fears concerning global stability and health overall appear to be in decline overall, the recent volatility serves as a great reminder of why it is so important to remain committed to a long-term plan and maintain a well-diversified portfolio.
When stocks struggle to gain traction, other asset classes such as gold, REITs, and US Treasury bonds can prove to be more stable. Flashy news headlines can make it tempting to make knee-jerk decisions, but sticking to a strategy and maintaining a portfolio consistent with your goals and risk tolerance can lead to smoother returns and a better probability for long-term success.
Brookstone Indicators
Brookstone has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).
In a nutshell, we want the RPI to be low on a scale of 1 to 100. For the US Equity Bull/Bear indicator, we want it to read at least 66.67% bullish. When those two things occur, our research shows market performance is typically stronger, with less volatility.
The Recession Probability Index (RPI) has a current reading of 27.94, forecasting a lower potential for an economic contraction (warning of recession risk). The Bull/Bear indicator is currently 100% bullish, meaning the indicator shows there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).
It can be easy to become distracted from our long-term goals and chase returns when markets are volatile and uncertain. It is because of the allure of these distractions that having a plan and remaining disciplined is mission critical for long term success. Focusing on the long run can help minimize the negative impact emotions can have on your portfolio and increase your chances for success over time.
