Investment Consultant, Gary Goldberg Financial Services
Tis the time of year when prognosticators and pundits step forward and make all sorts of predictions and forecasts regarding the economy and markets for the coming year. While there is certainly nothing wrong with expressing your opinion or views, after all I’m doing it here every month, investors should be cautious and understand that most of these predictions and forecasts are at best educated guesses and most likely will prove to be a distraction to what matters most for investors.
The problem is simple, and I know this because our President is asked to participate in nearly every survey by the press you can imagine. The questions are typically phrased to come up with a specific number. For instance, a reporter might ask where the 10 Year Bond will be at year-end. Let’s say the answer is 3%. So what? Who cares if it’s 3% , 3 ¼% or 2 ¾%? The more meaningful question is, “what will cause the ten-year Treasury yield to rise to 3% by the end of next year?”If the answer is strong economic growth and low inflation, than the rise is a good one. If the answer, however, is because of rising inflation and political turmoil, then it’s likely to prove harmful for investors. In other words, reporters are asking the wrong questions – generally because of time and space constraints – and pundits and prognosticators are giving partial answers.
So, should you ignore all of these predictions and forecasts? I don’t think so, they are fun and there are a lot of really smart people out there that you can learn from. Specifically, there is one set of predictions and ongoing data points you should really focus on and track, as this data is likely to prove most important to stock investors. Earnings. It’s all about Earnings. Corporate Earnings Growth is much more important than whether interest rates rise by ¼ % or ½% or not at all, or the economy grows by 2.3% or 2.5%.
Fourth quarter earnings season will officially kick off on Monday January 12th when ALCOA reports. To over-simplify the point, as earnings rise, stock prices become more attractive, drawing in buyers who in turn drive prices higher. Without robust earnings stock gains are likely to be muted, so pay close attention to early January figures, as this reporting season is likely to set the tone for the months ahead. One word of caution, don’t generalize and assume that broad based reports necessarily apply to your stocks holdings or those held inside your mutual funds. A thorough analysis is always warranted, and can help avoid costly mistakes. Happy Holidays everyone.
Christopher Hanly is an investment consultant with Gary Goldberg Financial Services in Suffern and can be reached at (845) 368-2900 ext. 247 or [email protected]