Missed a Recession, But Not a "Vibecession"
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There was a new term that joined our lexicon last year: “vibecession.”
A vibecession is a recently introduced term used to describe a disconnect between the economy of a country and the general public's perception of it, which is primarily pessimistic. The idea of vibecession is ultimately about how the economy makes people feel, but not what the facts are and how the economy is really doing (perception vs reality).
Views on the current state of the economy, particularly south of the border, are increasingly being perceived in the eye of the beholders, who are allowing their political views to cloud the objectively quantified financial ones. Despite signs of a strong U.S. economy and markets at all-time highs, many investors appear to be increasingly worried about their financial outlook. In the recent MoneyTalk, Brad Simpson, Chief Wealth Strategist at TD Wealth, expands on this and discusses the divergence between market performance and investor sentiment.
Economic facts do matter
Data consistently outlines economic growth and the labour market's resilience. Nevertheless, investors' negative perception of the economy (and the market outlook) are putting them on the investment sidelines and parking their investments in cash and cash equivalents. One of the reasons for this sentiment is that investors are no longer receiving their updates from economic data sources, but heavily rely on social media, specifically alternative news outlets that focus on dramatic and negative news.
The U.S. economy and looming election are clear examples of this. The fact is, the economy in the U.S. is good — and compared to most of the rest of the world, it’s pretty great. Toxic politics in the world’s superpower is being perpetuated by social media, compounded by algorithms, and it’s having a negative impact on wealth investors globally. Our emotions are being challenged in a way that they have never been before. However, the reality is that investors focusing on their goals rather than their feelings about the economy benefitted from following their investment strategy.
Leaning on a trusted professional
Making investment decisions based on how you feel about the economy at the expense of the facts about the economy can have a considerable long-term impact on your financial goals. More often than not, the noise on your phone only matters over the short-term. Over the long-term, what’s important is not always having the correct facts but having the correct process. That process requires professional investment management, ideally from an institution that can provide the best information in real time, along with an investment philosophy that can stand the test of time. Ultimately, investment decisions need to be based on the foundation of empiricism, not on political fears reinforced by algorithms.
The information contained herein has been provided by TD Asset Management Inc. and is for information purposes only. The information has been drawn from sources believed to be reliable. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual’s objectives and risk tolerance.
Certain statements in this document may contain forward-looking statements (“FLS”) that are predictive in nature and may include words such as “expects”, “anticipates”, “intends”, “believes”, “estimates” and similar forward-looking expressions or negative versions thereof. FLS are based on current expectations and projections about future general economic, political and relevant market factors, such as interest and foreign exchange rates, equity and capital markets, the general business environment, assuming no changes to tax or other laws or government regulation or catastrophic events. Expectations and projections about future events are inherently subject to risks and uncertainties, which may be unforeseeable. Such expectations and projections may be incorrect in the future. FLS are not guarantees of future performance. Actual events could differ materially from those expressed or implied in any FLS. A number of important factors including those factors set out above can contribute to these digressions. You should avoid placing any reliance on FLS.
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