We are five weeks into the year, and I've already identified the recurring theme: uncertainty. Though investors don't often turn to Einstein for quotes, his assertion that "The only thing we can count on is uncertainty" seems particularly apt for 2024. Numerous headline topics contribute to this sentiment, so let's delve into the most prominent ones.
Short-Term Uncertainty
Consumer Credit
As the economy cools, consumers are exhibiting signs of strain. A recent poll by Lending Club and pymtns.com revealed that 65% of struggling consumers carry revolving balances on their credit cards. Additionally, 57% of all credit card holders live paycheck to paycheck. Coupled with steadily rising serious delinquencies, lower-income consumers are signaling distress. Can consumers sustain spending levels seen in the last three years?
Inflation
Inflation remains a hot topic, with the Federal Reserve cautious about lowering interest rates until they're confident of curbing inflation. Despite potential economic discomfort, a repeat of the 1970s is the Fed's least desirable outcome. Meanwhile, savers are benefiting from interest rates not witnessed since the early 2000s.
Elections
Election season is in full swing, with candidates coming and going, and the drama continuing. This election is expected to directly impact future tax rates and Federal spending levels. While headline-making promises are inevitable, significant changes from the Federal government are unlikely regardless of the outcome.
Long-Term Uncertainty
Artificial Intelligence (AI)
The role of artificial intelligence in shaping our future remains uncertain. Is it the next tech bubble or the harbinger of a transformative era? The narrative is still unfolding, but early investors are witnessing significant shifts in fortunes.
Debt Levels
Debt, whether student, personal, or Federal, is making headlines. Rising interest rates are beginning to impact consumers, contributing to a growing interest burden on the economy with no apparent relief in sight.
Managing Variables
Despite the prevailing concerns, there's no need to panic. Americans have weathered similar challenges before. Economic cycles are predictable, and consumers have historically adjusted their spending habits accordingly. While uncertainty is inherent, a solid financial plan can guide you through turbulent times. Simple strategies like dollar-cost averaging can mitigate concerns about current market prices, and a trusted advisor can offer valuable assistance. Owning shares in essential sectors with proven track records is a sound strategy. While we can't control external factors like interest rates or housing markets, we have control over how we earn and allocate our resources.
While uncertainty prevails, proactive planning and a focus on the long-term outlook can help investors navigate through uncertain times effectively.
