As I write this note the world markets have been continuing their positive weekly advances over the last 6 weeks. Although we ended the quarter still down from beginning of year, today we have Canada's stock market positive for the year and U.S. and world indexes have also gained considerable ground.
You may be aware; the stock market is a leading indicator. This means that they change before the economy has changed, providing clues of whether we are in for an upswing or decline. A market rebound is typically associated with the early expansion phase of the economic cycle, or with expectations that the cycle is about to turn positive. Unfortunately as you know, market performance occurs in fits and starts and it is often only in hindsight that the larger trend lines become discernable.
Governments worldwide have taken unprecedented and coordinated action to stabilize financial markets and economies around the world. Thru Fiscal Policy with the Stimulus packages to monetary policy of easing of the lending rates all countries are focused to lessen the turmoil of the world's recession and the length of it.
The Lagging indicators such as employment, GDP, consumer spending and housing starts tend to attract more attention than the leading indicators. At their bleakest or most negative, lagging indicators, despite their focus on the past, may also say something about the future. This is because as numbers hit their bleakest or most negative – in confirmation of a slowdown or recession- is also often when you'll see the leading indicators kick into effect and start heading up.
In previous economic slowdowns, job creation typically found a footing well after equities bottomed and the recession was over. This is because equities often rebound as lagging economic fundamentals continue to decline.
As we continue on in '09 we will hear positive news and some negative news. Remember that Financial Planning and a long term perspective remain key to achieving financial goals.
