Today’s Employment Data Comes with a Cautionary Tale

December 6th, 2019 by Tanner Wrisley

Today, the department of labor released employment data that surprised the market. After last year’s success, many believed 2019 would be the year we see the United States’ economy start to turn. After all, the global economy has been slowing for years. Yet here we are, three and a half weeks from 2020, and the economy is still churning.

  • Employers added a healthy 226,000 new jobs in November, this blew the expectation of 187,000, out of the water.
  • Additionally, the jobless rate fell to another 50-year low of 3.5%, tying its record mark in September[1]. Job growth is a good indicator of how the economy is producing and this data was impressive enough to move the Dow Jones Industrial Average up 300+ points.

Over the last decade, the stock market has outperformed compared to historical averages. 2018 was the only calendar year in which the S&P 500 ended negative, but even that was short lived as those losses were erased in a matter of weeks. If 2019 ended today, the S&P would be up over 25% on the year and very near an all-time high. This continued success has given investors a sense of comfortability in the stock market and is leading many to expect this kind of return, year in and year out.

With all of this economic and market growth it is important to remember two things when it comes to investing:

  • Have a plan
  • Manage your expectations.

While we at Anchor Bay don’t foresee a drastic downturn happening overnight, we like to remind investors that we have been experiencing unprecedented growth since the recession in 2008. Unfortunately, the good times won’t last forever. As laid out earlier in this article, the U.S. economy is well positioned currently. But eventually, things will start to slow down. And when stock market returns start to turn over, it is crucial to have a plan in place. At Anchor Bay, we don’t invest to hit a certain return threshold every year. We invest to meet each individuals’ specific needs, creating portfolios catering to that individual’s financial goals.

For a long-term investor, exceptional economic and market success has put their portfolio is ahead of schedule compared to what was expected at the beginning of the decade. And although downturns are never ideal, that investor has the ability to ride out less than stellar returns, and still be on track for his or her long-term objectives.

Managing expectations and understanding the plan by not panicking, and selling at lows, is paramount to achieving financial goals.

For short-term investors who need cash flow, the ability to wait out a downturn is nonexistent. Here, we rely on income producing investments that work to take much of the volatility of returns out of the equation. In a negative market, dividends are typically a more reliable source of return than appreciation[2]. Incorporating a dividend-focused stock selection in an individual’s portfolio helps to keep the cash flow steady in spite of how the value of the securities change. Understanding this concept can prevent undue panic and poorly timed selling as well.

The good news is the economy is doing well right now, as reflected in the latest employment data. But with trade deals, interest rates, and the political landscape in constant flux, there is no telling where we might be at this time next year. Having a plan in place and managing expectations can go a long way towards the future success and sanity of an investor, regardless of how the market behaves.

[1] US Hiring Strengthened in November, Fueling Expansion The Wall Street Journal

[2] Stock Market Demand is Changing, and We Like Where It’s Heading Anchor Bay Capital