While our markets, exchange traded funds (ETFs) and the broader economy enter into some sort of recovery mode, there are some reasons to believe that our road to wellness could be a rocky one.
The U.S. economy has hit, or will encounter, many potholes on the road to recovery. Irwin Keller for Bloomberg reports there are many reasons to tread lightly with investments:
- The natural drives that turn recessions into recoveries are spun out by a number of obstacles. Lack of fiscal stimulus, monetary policy and banks unwilling to lend are just the beginning.
- Rising interest rates are the death of many loans. As the rates rise, the fewer the number of people who can afford them. Therefore, student loans, auto loans and mortgages, along with small business loans may lose momentum.
- The cost of living is starting to rise, as gas prices are inching higher and oil isn’t sure what it will do next. Although prices should stabilize, there are no guarantees, and this factor will keep consumers on the cautious and conservative end.
- Purchasing power is low, as the hidden costs of production is shrinking product size.
- Households are shoring up and building up on savings. The savings rate is high, around 5.7%.
- Unemployment is high and may still be rising. Around 7 million people are collecting unemployment, and it is tough for many people to find jobs. The bankruptcies of Chrysler and General Motors will only add more to the unemployment lineup.
Whether a rally is for real or not, it’s easiest to protect yourself by sticking to your strategy when it comes to investing. When you buy, have a point at which you’d sell, and stick to it.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.