Heading Into Uncertainty? Focusing on Long-Term Portfolio is Critical.

February 15, 2019


Coming off a volatile fourth quarter to wrap up 2018, there has been plenty of uncertainty and noise about a potential recession — and what that means for the markets — as we move toward 2020. But we do not believe now is the time for investors to deviate from their long-term portfolio goals.

The Federal Reserve in December lowered its expectations for U.S. economic growth, cutting its estimate for U.S. GDP in 2019 to 2.3 percent growth, down from a September projection of 2.5 percent. The Fed lowered its GDP growth estimate for 2018 to 3 percent, down from 3.1 percent.

The Fed’s unemployment estimates for 2019 remained the same, while projections for 2020 and 2021 were revised upward by small margins.

A Reuters poll of more than 110 economists found a somewhat more negative outlook for U.S. economic growth this year and next. The respondents on average predicted a 25 percent chance of a U.S. recession in next 12 months, and pegged the probability of a downturn in the next two years at 40 percent.

As the Federal Open Market Committee noted in its late-January statement, “the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has remained low. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier last year.”

Expectations for the global economy, however, are markedly more negative compared with the consensus U.S. outlook. The International Monetary Fund revised down its estimates for global growth in late January, warning that the expansion seen in recent years is facing substantial headwinds. The IMF has reduced its projections for global growth two times in the past three months.

The World Bank says in its 2020 outlook that “[m]oderating activity and heightened risks are clouding global economic prospects. International trade and investment have softened, trade tensions remain elevated, and some large emerging market and developing economies (EMDEs) have experienced financial market pressures.”

Despite the recent market volatility and legitimate concerns over trade and a slowing global economy, we do not believe a recession is a foregone conclusion. Many economic indicators remain strong. However, even if we do enter recessionary territory, it is important to maintain focus on the long-term portfolio objectives and strategic targets, rather than reacting to short-term market difficulties.


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