We have always liked the clip from the movie Animal House where in the “Deltas on Trial” scene the smooth talking Eric “Otter” Stratton get up and says, “Point of parliamentary procedure.” From there Otter goes on a diatribe ending with the comment, “Isn’t this an indictment of our entire American society?
I am really coming to grips with my 2018 outlook, and I find myself wrestling with the implications of slowing growth on the economy and, in particular, the markets. The fundamentals have been strong, with good earnings growth driving the markets up.
Earnings season, both in the United States and globally, has been solid, while economic growth has accelerated across much of the globe—all supportive of an ongoing global bull market. Elevated optimism and complacency could lead to pullbacks, but we believe it would be in the context of an ongoing bull market.
Market risks come in three flavors: recession risk, economic shock risk, and risks within the market itself. So, what do these risks look like for November? Let’s take a closer look at the numbers.
It has been a busy couple of days in the news. So, while I don’t ordinarily quote Lenin, his statement that “there are decades where nothing happens; and there are weeks when decades happen” is just too applicable to ignore.
So I am sittin’ on a dock of the bay here in Boca Raton Florida watchin’ the tide roll away as I wait to speak at a conference of insurance CEOs and CFOs. I have spoken at this annual event for the past 10 years, and it is always a “gas” because the attendees are terrific people.
My last report was on the acceleration in business capital spending (capex) that is likely to be an economic highlight in 2018. Part-and-parcel of capex is productivity—officially known as non-farm labor productivity—which has averaged less than 1% annualized growth during the current expansion.
Surprising no one, the Fed kept rates unchanged; but strongly hinted that the market’s correct about the near-certainty of a December rate hike.
We have used the aforementioned quote many times over our nearly 50 years in this business, but surprisingly, it is just as relevant now as it was when first written. Bet it surprised you that the quote is dated 1935! Read it a few times away from the maddening crowd and reflect on it, because certain phrases will grab you with their wisdom.
Global and domestic economic growth, along with a solid earnings picture and a potential tax reform tailwind, suggest investors should remain at their target equity allocations. Pullbacks are possible but a recession doesn’t appear to be in the cards in the near term, which historically has meant the risk of a pullback turning into a bear market is low.