Consumer spending dominates the composition of the U.S. economy, trending at about 70% of gross domestic product (GDP). But how have consumers fared in the aftermath of the Great Recession and financial crisis that began 10 years ago? Data show that relative to other economic recoveries, consumer spending has rebounded at a much slower rate. And, there does seem to be some truth to the widely circulated idea that consumers have shifted their spending patterns, focusing more on experiences. However, this shift should not be overstated.
Corporate America delivered another outstanding earnings season, with double-digit earnings growth, solid upside to forecasts, and generally upbeat outlooks from corporate management teams. We have been particularly impressed with the breadth of earnings gains and upside to revenue forecasts. Strong earnings continue to provide support for the stock market at elevated valuations, with the potential for more support from a reduced corporate tax rate next spring. Here we provide an overview of the nearly completed second quarter 2017 earnings season.
Treasury Inflation-Protected Securities (TIPS) are sought after when inflation is expected to rise. Backed by the U.S. government and similar to Treasury bonds in quality, TIPS offer interest payments and principal values that increase with inflation. At the start of this year, the consensus view was that inflation would climb; TIPS prices increased with demand as investors sought protection from anticipated inflation. Thus far, however, U.S. inflation, as measured by the Consumer Price Index (CPI), has failed to materialize.
Economic reports released in July 2017, which mostly reflect economic activity in June, indicated that the economy continued to rebound in the closing month of the second quarter following weak growth in the first quarter. The stronger June data was reassuring after an initial bounce back in April was followed by weakness in May. Consensus expectations for 2017 real (inflation-adjusted) economic growth held steady at 2.2% throughout July, according to Bloomberg surveyed economists.
The Portfolio Compass provides a snapshot of LPL Financial Research’s views on equity, equity sectors, fixed income, and alternative asset classes. This monthly publication illustrates our current views and will change as needed over a 3- to 12-month time horizon. Read recent issue...
Stock markets, bond markets, the economy, policy — some years they push and pull on each other lightly as markets follow their own path; in others, one influence, such as monetary policy, dominates. But sometimes, often following a period of change, understanding the pushes and pulls and how they interact becomes a key to reassessing market dynamics for the next year and beyond.
An important shift has taken place in this economic cycle. The Federal Reserve (Fed) was finally able to start following through on its projected rate hike path, raising rates twice in just over a three-month period. By doing so, the Fed showed increasing trust that the economy has largely met its dual mandate of 2% inflation and full employment, that the economy is progressively able to stand on its own two feet, and that fiscal policy may now provide the backstop to the economy that monetary policy has provided throughout the expansion.
During any presidential election, you can expect a barrage of promises from the yard sign endorsements, bumper stickers, stump speeches, and media headlines. All pledge to improve the economy, provide better education for all, and preserve the environment.
The Economic Cycle - We believe we are in the mid-to-late stage of the current expansion, but we are still seeing some early cycle and late cycle behavior. Extended loose monetary policy, inflation, and employment growth are still exhibiting early cycle behavior, while some items relating to corporate profits are showing late cycle behavior, although they may be reset if profits improve.