SUMMARY

  • Things We Are Thankful For

Editor’s note: We are publishing a bit early this week, anticipating that many will be enjoying a long Thanksgiving weekend with family and friends. In the spirit of the holiday, we humbly offer a handful of things we are grateful for.

  • We’re thankful for this year’s economic growth in the U.S., which has exceeded most expectations. A soft first quarter has been followed by two quarters in which real activity expanded at an annual pace exceeding 3%. Early indications suggest the fourth quarter could extend this streak; holiday sales are forecast to beat last year’s level by more than 4%.

It’s rare to see momentum of this kind so late in an economic expansion, especially considering that America’s long-run potential rate of economic growth is around 2%. After stagnating for 2½ years, real business investment has risen by almost 6% over the past four quarters. The returns from these investments could improve productivity growth, which has been disappointing during the current cycle.


  • We’re grateful for this year’s market performance, which has been outstanding. There is some risk of jinxing things by expressing our feelings before the final trading day of the year, but asset price appreciation will likely be the top economic theme of 2017. The wealth effects generated by investment gains could be a substantial tailwind for growth in 2018.

But as pleased as investors should be, the current state of markets has also generated a fair share of anxiety. As valuations increase and capital continues to pour into sectors that may already be stretched, prospective returns may come under pressure. Jim McDonald, our chief investment strategist, looked at this issue in his recent piece “Valuation Sensitivity.”