USA TODAY International Edition
Now is an amazing time to pick up some stocks
Day to day, stocks seem to flail around like lotto balls in a gravity-pick machine. Frenetic, directionless and wild. Over the long term, however, stock prices are fueled by economic and earnings growth and behave rationally. Let’s examine the facts.
Unemployment is at a 50-plus year low. Tech employment, which makes up just less than 4% of total U.S. jobs, is growing much faster than overall employment.
This is good news for investors. Why? Because technological innovation increases worker productivity, which then allows corporations to produce more goods per employee. And despite rising wages due to a scarcity of job seekers, improving productivity allows corporations to maintain profit margins and earnings growth – an important driver for stock prices.
Interest rates as measured by the 10year Treasury have declined from almost 3.3% last fall to 2%. Lower interest rates can hurt savers but help spenders and boost the demand for housing. Low rates also make stocks more attractive.
To be sure, the economic data is volatile in the near term and even more so thanks to the trade war with China and ongoing threats of tariffs. But the longterm trend in economic data is positive, supported by the fundamental strength in the economy. Reaching an agreement with China would relieve the pressure on waning CEO confidence which has resulted in reduced capital expenditures (capex drives productivity). But even without a China deal on the table, the economy is growing above the trend of the last 10 years.
Expect continued day-to-day stock market volatility. Stocks are marked to market every second and that volatility is exacerbated by the computer algorithms that drive big trading programs. But if you are investing for the next three to five years rather than the next three to five minutes, then the shortterm volatility should not “scare you out of stocks,” as the great Peter Lynch cautioned.
The daily noise can be disconcerting. Pay attention to the facts supporting your long-term investing objectives.