Don’t Let Ominous Economic Signs Deter You From Stocks

Arcadia Wealth Management

Investing in the stock market can be a bit like an emotional rollercoaster, and sometimes it’s difficult to know what to make of financial news, economic indicators, and more. We’re sharing the below graphic and explanation with you because it shows that, though there may be some negative indicators at the moment, there’s also room to be optimistic about investing in stocks right now.

The Philadelphia Fed’s survey-based Business Outlook Index¹ suggests some manufacturers have a very pessimistic expectation of the economy. The index is more negative than any time since the onset of the Covid pandemic and on par with the Global Financial Crisis in 2008. In general, negative spikes in this index have closely aligned with economic downturns. But investors shouldn’t let this ominous sign deter them from stocks.

Since the index’s start in May 1968, the outlook was negative in 165 out of 648 months. The return of the S&P 500 Index over the next 12 months was positive for 76% of these 165 observations. To put that in perspective, the frequency of positive S&P 500 returns over any 12-month span during the period was 78%. And the average magnitude of the return following negative months, 13.4%, was higher than the unconditional average of 11.5%. Just another reminder that markets price in changes in economic states before they come to fruition.

Manufacturing Business Outlook Survey data from the Federal Research Bank of Philadelphia. Index is computed as the percentage of respondents indicating an increase minus the percentage indicating a decrease. Recession periods sourced from the National Bureau of Economic Research and begin the month after a business cycle peak month and continue through the business cycle trough month.

1. A monthly survey of manufacturers in the Third Federal Reserve District. Participants indicate the direction of change in overall business activity and in the various measures of activity at their plants: employment, working hours, new and unfilled orders, shipments, inventories, delivery times, prices paid, and prices received.

Disclosures

All expressions of opinion are subject to change. This information is not meant to constitute investment advice, a recommendation of any securities product or investment strategy (including account type), or an offer of any services or products for sale, nor is it intended to provide a sufficient basis on which to make an investment decision. Investors should consult with a financial professional regarding their individual circumstances before making investment decisions. Diversification neither assures a profit nor guarantees against loss in a declining market. Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

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Dimensional Fund Advisors does not have any bank affiliates.

Past performance is not a guarantee of future results. Indices are not available for investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.

Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Information provided in this blog is for educational purposes only and is not intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with own financial advisors, accountants, or attorneys regarding your individual circumstances as needed. No advice may be rendered by Arcadia unless a client service agreement is in place. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

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