This Should Worry Investors for the Rest of the Year
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Your Money Briefing. Money and market stories from The Wall Street Journal. I'm J.R. Whalen in New York. The economy looks rosy now, but what should investors be on the lookout for during the rest of the year? We'll speak with the president of Guidestone Capital Management in a moment to get some answers. First, these money headlines. Wall Street Journal chief economics commentator Greg Ip says as strong as the economy's second quarter growth of 4.1% was,
What should investors be watching after a 4.1% Q2 GDP surprise?
It's unlikely to be repeated soon. He points out some of that growth may be a one-off rise as people spend their tax cut. But a tight labor market causing companies to boost wages put money in people's pockets as well. And earlier this month, we reported that the U.S. homeownership rate continues to climb, with more Americans benefiting from the sharp rise in home values in recent years. We've gotten word also that foreign purchases of U.S. homes had their biggest drop ever, bringing relief to waves of American house hunters who have struggled to compete in affluent neighborhoods with wealthy buyers from abroad. The National Association of Realtors says that purchases by international buyers have totaled $121 billion in the fiscal year ended in March.
That's down 21 percent from the previous year and the largest on record. Economists point out the sharp decline in purchases reflected higher home prices, a strengthening dollar, and intensifying political tensions between the U.S. and other parts of the world. This is your Money Briefing from The Wall Street Journal. Welcome back, everybody. We got a burst of good economic news on Friday with word that the economy grew at the strongest pace in nearly four years in the second quarter. And while that'll please Wall Street, investors should still keep a watchful eye on myriad economic indicators. And David Spica is president of Guidestone Capital Management, and he's here with us to discuss. So, David, the saying goes, chance favors the prepared man or woman.
And at first glance, it wouldn't appear a recession is near. But what can investors do to prepare themselves for inevitable bumps in the road? Are there particular headlines to look out for down the road?
Sure. I would agree that it doesn't appear a recession is on the horizon. We are very long in the tooth in this economic expansion and in the bull market. But as you mentioned, growth in the second quarter was over 4%. Unemployment is still very, very strong or the employment rate is very, very high. And there's still a lot of data that would indicate the economy is going well. But in order to prepare, I think it's important for investors to note that this has been a very powerful and very long bull market. And it's probably better to prepare ahead of time. You don't want to get too greedy. So at this point, it's probably a good idea to start thinking about being a little bit defensive. It doesn't mean you sell your equities and hide out in cash, but cash rates are going up.
Cash is now becoming a more viable investment option. There are other strategies besides stocks and bonds that do make sense in this environment, and they can protect you against the inevitable volatility that we're likely to face.
And so it's a good idea for investors to take some risk off their portfolios?
Absolutely. I think now's a good time to do some de-risking. So, for instance, you saw what happened with Facebook after they had their earnings announcement. That was disappointing. The stock was down 24 or 25 percent after hours. Been a great company to own. But clearly, at certain points, expectations get very, very high for stocks, get very high for asset classes. And we're at that point now. That's when there's a lot of risk that investors don't really notice. So taking some money off the table, reinvesting in less volatile asset classes. Even bonds are a little bit dicey at this point, but there are other asset classes that make sense to own at this point.
Speaking of bonds, as we reported this month on your money briefing, concerns over trade and inflation have caused some investors to move out of U.S.
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