Local financial advisers and economists offered their perspective on the slipping stock market and the prospect of a double-dip recession. While each expressed reservations about the condition of the economy, they maintained the darker days of 2008 and 2009 are behind us.
Stephen Benjestorf, SB Planning, Inc., Lodi:
At this point I don't think there will be a double-dip recession, but you have to leave the door open to the idea. All the indicators, such as two consecutive quarters of negative Gross Domestic Product, are not there, so I don't see it on the horizon.
A lot of the problem comes from negative news coverage. Channels like CNBC are in the business of selling news, and their tone changes from day to day. One day it's buy, buy, buy and the next it's all about selling. Channels like CNBC are more for active traders, but you can't manage a portfolio by watching the news.
The jury is still out on what will happen in the bond market. Standard and Poor's (a ratings agency that downgraded its outlook on the nation's ability to pay its debt) has its integrity to protect. S&P has already downgraded the nation's credit rating and it will do it again if Washington doesn't respond. A second downgrade could significantly hurt us.
It's hard for people to know who to turn to in times like this, because three different experts will look at the same numbers and get the same answers. The people I look to for advice are realistic and have a reputation for accuracy. Anybody can get out there and speak the language, but true experts have a reputation that's earned by their motivation to be consistently accurate.
Phil Lenser, Edward Jones, Lodi:
The market reaction to the S&P downgrade has been significant, but some of my clients have seen it as an opportunity to add to their positions or buy into new ones. I've had people come to me with concerns in recent days, but no one has taken their holdings out of the market; and that's encouraging.
Even after all of this volatility, most people are still positive for the year. They may only be positive by a percent or so, but they are still higher than they were a month ago.
We'll have to see what happens with federally connected bonds in the coming months. With the S&P downgrade, it would seem to be a natural move for those bonds to be downgraded as well.
For some reason, gold remains to be a safe-haven choice for investors. It's odd because some of them think the investment will save them if the economy collapses and we start trading metal for bread. But owning a piece of paper saying you have gold is worthless if it comes to that. If you want to invest in gold, buy physical gold. But it has been interesting to see this commodity to continue to get popular. Usually when something gets this popular it will start to go the other way at some point, but it still hasn't happened.
Jeffrey Michael, director, Eberhardt School of Business' Forecasting Center at University of the Pacific:
It's definitely an interesting situation. I've never done well trying to get inside the collective brain of Wall Street and why it moves in such a herd, but the S&P downgrade helped contribute to this perfect storm in the market. In the absence of a debt standoff, all the other factors in the market (unemployment, overseas instability, recovery) would've lowered expectations for growth. The downgrade is just added on top of it.
All signs point to continued sluggishness in the economy in the coming months.
I don't know if the government made a good strategy in using the debt ceiling as political tool. I'm not sure it was successful negotiating tactic, especially because we could see repeat episodes of it in the future.
Who knows if there will always be a last-minute resolution to it? That makes U.S. government debt a riskier investment than before.