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Does the Fed Need a Spanking?

There’s a sign at our house that reads, “Children are often spoiled because no one will spank Grandma.” JP Morgan’s Chief Global Strategist recently compared the government and the Federal Reserve to grandparents over-indulging an already stimulated grandchild (the stock market), and investors are left being the responsible ones.

The upcoming interest rate cut expected July 31st joins the now $747 billion deficit (i.e., higher government spending) to give the markets another sugar high. The S&P500 is up over 18% year-to-date, and stocks appear to be valued about 6% above their twenty-five year average (based on forward price-to-earnings ratios).

This is a good time to check in on our home-country bias when it comes to investing. International stocks haven’t been bolstered in the same way by fiscal and monetary stimulus moves, and can provide some healthy diversification, especially when a U.S. market correction does occur. The United States represents 24% of global GDP, and yet U.S. investors pour 70% of their money in U.S. stocks and bonds. We also have sector biases depending on where we live. Compared to the rest of the country:

  • West Coasters are 10% more likely to invest in Technology stocks

  • Northeast investors are 9% more likely to own Financial stocks

  • Midwesterners are 11% more likely to own Industrial stocks

  • Southerners are 14% more likely to invest in Energy stocks

Know what you own, and be aware of your local biases.

Source: JP Morgan Guide to the Markets Q32019

Amy Barnes