With stocks gaining back some of the value they lost in 2022 despite lingering high inflation and fears of a recession, experts see glimmers of hope for financial advisors and their clients.
For the year to date as of morning trading on Feb. 15, the S&P 500 was up around 7.5%, compared to declines of more than 19% in 2022 —
The contrasting indicators are adding more confusion to the main question facing advisors and investors: At what point will the Fed stop raising interest rates that hamper economic growth but get inflation back to normal levels?
The standard answer would be a rate of inflation about 2% on the personal consumption expenditures price index, excluding food and energy, or the "
"It's hard to find opportunity, and the uncertainty is almost paralyzing, but, if you're a longer-term investor, you know that prices are below record highs right now," she said, defining the "longer term" as roughly five years. "If you can take that long-term view, and if you can handle a little bit of volatility, this could be a good time to step in."
She and Bob Shea, the chief investment strategist of registered investment advisory firm platform Dynasty Financial Partners, agreed that the latest indicators show little signs of the deep recession that investors feared would overtake the economy last year.
At the same time, though, Shea pointed out in an interview that investors have "really never seen inflation come down as quickly as its come down without having some kind of a recession" and predicted that there will be a significant one in a future year.
"I think this year's growth slowdown is going to be easier to navigate than last year's inflation surprises," Shea said.
Amid the fears of a recession in the larger economy, though, it's "really important for advisors to be there to help their clients understand and tune out the noise," said Kevin Green, the head of investment solutions analytics with asset management firm Dimensional Fund Advisors.
The company is
In an interview, he counseled advisors to remember that stock prices are "forward-looking," meaning that they will have typically "already reflected" a recession prior to
"The equity market had already reached a low and was on the path to recovery before the announcement was made," he said. "On average, equities have delivered positive performance over those time horizons following the onset of the recession."
Cox sees "some parallels" in the current economy with that of the late '70s and early '80s with the high inflation and an aggressive Fed seeking to get it in check. The low unemployment and the additional factor of the pandemic make this time much different, though. The key risk in the economy remains around whether inflation will turn into "a snowball effect" gathering mass and speed as it rolls over any possible growth.
"That's what the Fed wants to avoid, and so far they've avoided that, which is really good news," Cox said. "It's easy to fall into a more bearish stance here, saying that the Fed can't pull this off with all the moving parts. … The economy seems to be holding up now."
