As we all sit back and witness the wild swings of the stock market, the chaos over tariffs, and the political divide growing even further apart, it is difficult to have confidence in the direction our nation and economy are moving.
Obviously, one’s politics has a lot to do with their perspective on this topic, but whether you swing left or right, we can all agree that these are tumultuous times, and nobody knows what lies in store for our economy going forward.
After several years of enjoying a robust stock market, strong housing appreciation, and record-low unemployment, change is in the air. A quick glance at your 401(k) over the last month might be all the evidence you need, but the data keeps pouring in and it looks bumpy at best.
Most of our 401(k)s, IRAs, and other investments are typically linked to the stock market, which is all speculative about future growth (or decline) of publicly held companies. That there was such a sharp decline in the latter part of February and early March in all major markets shows that investors are shaken and very likely lack confidence in our economy.
Many have been tossing the word recession around, as that is what occurs when markets constrict and consumer spending slows, as both personal and business spending becomes more guarded. This is exactly what’s happening now.
When companies like Delta Airlines warn about slowing sales, Disney lays off thousands due to a decline in sales, it’s a prediction that consumers are going to tighten their belts and spend more frugally than when times are flush. This seems logical.
Does the economy itself start the recession, or is it the fear of a recession that makes the recession become a reality?
Fearful consumers spending less hurts sales for businesses, who in turn buy less, hire less, and spend less. This cycle is sort of a chicken or egg thing, as the belt-tightening caused by rumors of a recession actually can create the recession itself.
So here we are at the cusp of a recession, and naturally, fear is gripping investors. To some, the lower prices of major stocks present a buying opportunity. To others, it’s about tapering off some unnecessary spending. Many businesses we connect with for staffing and hiring are saying the standard, “We’re going to hold off for now,” which is a very consistent response we hear when markets tense up over the years.
These will be tricky waters to navigate. Some local financial planners I have spoken to about this have theories that ‘the market was due for a correction,’ another saying that ‘this is just temporary’ and not to worry, and another suggested that ‘the chaos this administration is sewing is purposeful and intended to create a recession so that interest is lowered, which will soften our national debt.’
Whatever the conditions and however long this downturn will last, the markets have always been cyclical, and unless anything catastrophic occurs, this too shall pass, but the real question is when.
