By Steve Dinnen
After the economy’s wobbly start to the year, when the nation’s GDP fell half a percent in the first quarter (outmatched by a 6.07% drop in Iowa), it has rebounded slightly and is predicted to post a gain of maybe 2.5% percent for the just-closed second period. Inflation is moderate, and unemployment is a manageable 4.2% nationwide.
Against this backdrop, though, consumer sentiment is decidedly negative. So bad, in fact, that this might be a good time to ratchet up your investments.
Chris Cook, chief strategist for the West Des Moines-based financial planners Gilbert & Cook, offered an explanation in a preview of the company’s midyear outlook. First, he pointed to the University of Michigan’s Index of Consumer Sentiment, which measures how consumers feel about the overall state of the economy and their personal financial situation. It reflects consumer expectations regarding current and future economic conditions, including personal finances, business conditions and buying conditions. Historically, the average score is 84.2 on a scale from 40 to 120.
The current score is 60.5. Every time it’s dipped lower, the stock market performance in the ensuing 12 months has been great to spectacular, according to J.P. Morgan Asset Management. After October 1990, it shot up 29%. After November 2008, it surged 22.2%. Following the last dip, in June 2022, it rose another 17.6%.
“Hang in there,” Cook said. The market is ignoring our feelings — to our benefit.
Indexes aside, market watchers are sifting through a pile of other data and new policies from businesses and the government. We’re currently in the midst of President Trump’s tariff war, which will raise prices for consumers and lower profits for importers (unless they can pass along duty expenses, in which case consumers will still see prices rise).
The stock market’s up-down cycles have caused investors to look for alternatives. Bonds? Real estate? Crypto? In recent years, a lot of money has veered into private equity, or private credit, and Cook sees that trend continuing.
Also trending at midyear artificial intelligence. It’s quickly moved into our businesses and personal lives. It could be good, or evil, but Gilbert & Cook co-founder and managing partner Linda Cook is optimistic.
“I choose to think it’s going to be used to solve a lot of problems of the world,” she said. She sees A.I. as a useful tool to solve investing problems but cautions against letting it make investing decisions.
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