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economic growth Archives -

Will Good be Good Enough?

By | 2018, Money Moxie | No Comments

Confirmation Bias: The tendency to only accept the facts that support what we already believe.

By virtually every measurement, the U.S. economy is growing–and so it is in just about every other country in the world! That means that even though stock prices are near all-time highs, they are also supported by real economic growth.

The question is, “How long can the stock market continue to grow before cracks begin to form?” The answer: Small cracks are already appearing and most people don’t see them, yet.

How could corporations disappoint in such a good economy? No way . . . unless expectations are too high and investors realize this 3, 6, or 12 months from now.

That’s exactly what this graph is showing: an inability to exceed high expectations. And the market in 2018 is more likely to be affected by expectations than by economics. After all, the growth that everyone expects is already priced into the market. The bar has been set high for 2018!

The Federal Reserve has a new chairman, Jerome Powell, and he seems determined to get interest rates back to more normal levels. This makes borrowing money more expensive and could, at some point, have a negative impact on stocks.

Consumers could turn the tide in a negative way! Consumers represent 69 percent of economic growth. They have been driving growth upward for two years by spending more than they can afford. How long can this continue?

The savings rate, once at 10 percent, is now approaching an all-time low of 2 percent! The risk is not that Americans have overspent, but that they cannot continue to overspend in the next two years like they have in the last two years! How will American consumers continue to lift the American economy when they run out of money?

What will be the next crack in the economy? It will probably not be in housing this time. Mortgage debt seems low compared to 10 years ago and there is a shortage of homes around the country.

Any further cracks may be in credit card defaults. That’s one area we will be watching.

For now, economic growth looks solid. We will keep an eye on things because we know that investments become over-priced while the data is still positive. What we know is that 2018 is already more interesting than 2017!

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Finding a Way to Boost Economic Growth

By | 2017, Newsletter, Viewpoint | No Comments

When Donald Trump was running for president, he promised Americans a huge increase in economic growth reaching 4, 5, and even 6 percent. However, real economic growth in 2017 is expected to be around 2.1 percent–equaling the average over the last 10 years.2 Boosting growth will require overcoming challenges and capitalizing on opportunities. 1

 

 

 

(1) David Payne, “Goldilocks GDP Growth: Not Too Hot, Not Too Cold,” Kiplinger, July 28, 2017.
(2) Federal Reserve Bank of St. Louis.
(3) Nick Timiraos and Andrew Tangel, “Can Trump Deliver 3% Growth? Stubborn Realities Stand in the Way,” WSJ, May 15, 2017.
(4) Glenn Kessler, “Do 10,000 Baby Boomers Retire Every Day?,” The Washington Post, July 24, 2014.
(5) Amanda Dixon, “The Average Retirement Age in Every State in 2016,” Fox News, December 28, 2016.

The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or investment plan. SFS is not affiliated with any companies mentioned in this commentary.

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Powerful Performance

By | 2014, Money Moxie, Newsletter, Viewpoint | No Comments

Economic growth in the United States was slow last year as the federal government dropped one potential bomb after another. However, none of these exploded and U.S. stocks had their best year since 1997. With all this positive momentum would it be too much to ask for an encore?

In January we escaped a close call with the fiscal cliff. Then came sequestration. By May, Ben Bernanke had dropped another bomb: tapering. Before the end of 2013 we endured a government shutdown.

Duds

Interest rates shot up last year with fear the Federal Reserve (Fed) would slow its bond-buying program. In 2014, this action is slated to become a reality.

Each month the Fed plans to slow its purchases by $10 billion. As it does, let’s keep in mind that any purchase is extra stimulus to the economy. The Fed is still flooding the economy with money. Some may compare this to pushing on a string, but the last few years have helped validate the phrase “Don’t fight the Fed!”

As the Fed becomes less involved as a driver of economic growth we may see more ups and downs in the stock market. In all likelihood, the coming year will be more volatile than last year.
When the next drop comes, let’s keep in mind that it is perfectly normal even in a healthy market to have some hiccups. A fall of 10 percent in stock markets occurs on average about once a year. These drops can even be healthy for long-term growth.

According to the Wall Street Journal, strategists believed the economy would slowly improve and the market would rise 8.2 percent in 2013. It rose 30.
This year, the economy is expected to grow faster, but predictions for stocks are more moderate.

The driving forces of growth should be similar. Domestic energy production is still rising. The housing recovery is underway. Employment is improving. Wages are expected to rise and changes in consumer spending are trending in a positive direction.

Improving economic growth does not necessarily mean more stellar stock returns. Sometimes the two can be out of sync as investors look to the future for something to get excited about. Nevertheless, stocks and the economy are closely related and the economy is still heading in the right direction for now.

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