- U.S. Economic expansion is continuing at a slow but steady pace. David Kelly, Chief Global Strategist for JP Morgan suggests the US is experiencing modest growth but research believes this is a good sign. In June, the expansion entered its ninth year, making it the third longest expansion since 1900. Nonfarm payrolls rose in June more than anticipated, with a net revision of +47,000 to April and May. However, job growth was not too strong and wage inflation remained moderate, minimizing concerns that the Federal Reserve will raise short-term interest rates more aggressively. The continued theme of moderate growth has continued to produce an opportunistic environment for investors.
- Equity valuations in the U.S. are not cheap but also not relatively overpriced at 17.5x forward earnings estimates in the S&P 500 index (vs. 16x for the twenty-five year average). We’re all hoping that President Trump and congress will be able to pass a corporate tax rate cut from the unusually high 39% to hopefully 15%. This should have an immediate positive impact on corporate earnings and improve valuations for U.S. equities.
- International Markets: After two years of modest growth, the global emerging markets is still undervalued and Europe markets are not only surviving but it is in fact thriving and poised to maintain growth. Money flows into emerging markets are still relatively weak and valuations are relatively cheap compared to developed markets.
- Core Inflation in the U.S. should continue rising moderately through 2018. Inflation is rising is Developed Markets and slowing in Emerging Markets, this is fueling growth in the emerging markets (usually the opposite)*
- Housing starts are topping off mainly because of the difficulties in obtaining homes for first time home buyers as FICO credit score requirements are more stringent than they have been ever been.
- Fixed Income Investments: Due to the rising interest rate environment, corporate and government bonds may be negatively impacted. For example, for every one percent rise in rates, a ten-year treasury bond is expected to decline 8.6% in value while only yielding 2.53% currently. To offset this interest rate risk, we continue to employ more flexible and strategic managers in the fixed income investments with more flexibility in the types of bonds. **
- Health Care: analysts believe congress will work more towards tax reform as healthcare looks to be at a stalemate. Many hurdles remain for Republicans to all be on board with a passable bill in the Senate, time will tell...
*Scott Brown, Chief Economist at Raymond James
Dr. David Kelly, Chief Global Strategist for JP Morgan
The S&P 500 is an unmanaged index of 500 widely held stocks that's generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Thomas Fleishel and not necessarily those of Raymond James.