On the same day the Dow Jones Industrial Average surpassed 14,000, nearly reaching its all-time high, Gallup released a poll announcing that confidence in the U.S. economy was near a five-year high.
Those concurrent Feb. 19 occurrences were viewed as further evidence that both people and markets are forging ahead as the recession fades in the rearview mirror. And with that trend comes the renewal of phrases like “investor optimism” and “consumer confidence,” terms that had fallen out of the lexicon several years ago in the heart of the recession.
Yet, in a world of a 24/7 news coverage and turbulent politics, financial analysts say there always seems to be something happening in Washington D.C. threatening to temper that enthusiasm. Ongoing and seemingly nonstop sequestration talks are the most recent case in point.
But financial advisors in the Flathead and elsewhere are hopeful that, despite the congressional wrangling and uncertainty, the general public is developing a more confidently optimistic economic outlook. And judging by polls like the Gallup, that transition does indeed appear to be happening.
“I think the polls are right,” Mark Brown, senior vice president branch manager at D.A. Davidson in Kalispell, said. “I think people are feeling better. Consumer confidence numbers are better.”
The result is that people are a little more willing to consider the full range of their investing and financial planning options – in other words, look to the future rather than constantly look over their shoulder at the recession-riddled past. They’re ready to put to use money that’s been sitting idly in their bank accounts.
“The general investing public still has a pretty good hangover from those years – people are still shell-shocked,” Jesse Rigler, a financial advisor with Edward Jones in Kalispell, said. “But I think the hesitancy and the concern have started to subside.”
Joe Coco, managing owner of Coco Enterprises in Whitefish, says he is seeing many customers investing prudently, having witnessed the all-eggs-in-one-basket repercussions of the dot.com stock market bubble burst of the late 1990s and the real estate crash more recently.
They’re careful about diversification, saving for college and long-term planning.
“People are saving more pragmatically,” Coco said.
In terms of stocks, investing has been in recovery mode for four years since reaching a low in 2009, with the Dow, S&P 500 and NASDAQ all rising steadily and with very little hesitation. The Dow dipped below 7,000 in March 2009. Brown said “the market precedes the economy in recovery.”
Serious investors were active when the markets were at rock bottom, while the general public jumped in as the markets improved, a somewhat counterintuitive yet common process that involves buying as prices get higher because confidence is also getting higher.
“The ordinary investor gets in way late and gets out way late,” Brown said.
Given how high stock market values have gotten, Brown said part of his job is to remind customers of the importance of risk mitigation and not overexposing themselves to stocks. Diversification will help soften the blow of a correction in the markets – and there will be a correction in the markets, Brown said.
“We haven’t had a 10 percent correction in quite awhile and that’s going to happen,” he said. “There’s nothing to get panicked about. It’s the 50 percent decline that kills you like we had in 2009.”
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Consumer confidence in the U.S. econony is growing. | Shutterstock photo |
“There are ways to mitigate the risk,” he added. “That’s what we do.”
For ordinary investors and families just looking to fundamentally plan out their financial future, as opposed to delve into the investing game, advisors say there are signs of fading tentativeness. With low interest rates, Rigler said he’s seeing more of a desire to pursue other investment options with higher returns than banks.
“We’re definitely seeing people who are frustrated with low interest rates,” Rigler said. “They’re looking for other options; they’re looking for riskier investments that give better yields.”
Financial advisors say today’s constant news cycle of impending crises – spawning from Washington D.C. battles – can be tiring and misleading, with the information stream affecting the decision-making of investors, business owners and everyone else. But Coco points to strong market performances during the fiscal cliff talks, and says the situation is similar with sequestration.
“All of that with the looming fiscal cliff – that’s what the pundits were saying but that’s not what the markets were saying,” Coco said.
“My clients have been doing this for 20 years,” he added. “When you cry wolf so often, pretty soon you lose credibility.”
Jack Ablin, a chief investment officer at BMO Private Bank in Chicago, was quoted in a recent Associated Press story saying investors are feeling comfortable despite the sequestration battle. Whereas previous D.C. battles have sent shockwaves through the markets, Ablin said investors are more unfazed this time around in part because the cuts are spread out over a decade rather scheduled all at once.
“I think investors are actually comforted by it,” Ablin told the AP. “It’s not ideal. But if Congress can’t do it when left to their own devices, this is the next best thing.”
Brown strikes a similar tone, though he concedes it’s “hard for people to remain confident” when surrounded by never-ending talks of potential financial crisis. He’d like to see Congress to find a solution, but he doesn’t believe there’s any need for panic if the problem goes unsolved.
“Even if that sequester hits, it’s not going to be the end of the world,” he said. “It’s just another bump in the road. But hopefully at some point Congress will fix this issue.”