Escape Velocity?

Daniel K. Stecich

Have we finally reached escape velocity? 

After years of sub 3% growth in GDP, the U.S. has seen two consecutive quarters exceed that level. We have flirted with this level in recent years, only to be disappointed with subsequent slow growth.  The past two quarters revealed respectable numbers (at or above 3%), and the strength appears to be sustainable. Consumer spending is solid, ISM* figures are strong, and the workforce nearly at full capacity. The European Union and Canadian economies are also improving. Along with favorable economic reports, we have seen good corporate earnings and the current quarters reports are continuing that trend.

Bubble Watch

While this appears to point toward a solid economic future, we need to remember that we are at record stock market levels and the economy is finally catching up to them. For the near term, markets may continue to behave well, but with the market at these levels, finding new opportunity is quite difficult. The best strategy going forward is to examine your portfolio carefully, making sure that it aligns with your risk profile and financial goals. As always, the best way to do this is to sit down with your advisor and make sure your strategy is on track to meet your goals regardless of inevitable stock market corrections.

Current Events

Even though it looks like all seems to be going well on our monthly statements, we need to keep in mind that our political system is fairly dysfunctional, with Democrats and Republicans alike acting worse than fourth-grade children in the local schoolyard. Unfortunately, this doesn’t look to be ending anytime soon and the important business of getting the country back on track is excruciatingly difficult. One bright spot seems to be the possibility of tax reform, but until a deal is officially passed, we can’t rest comfortably. Should this fail to pass, we may face a small stock market correction, as it will be yet another failure of this presidency to get significant legislation passed. I personally believe the chance of tax reform failure is remote, but these days anything seems possible. Finally, world events (North Korea in particular) have seemed to have settled down of late, but are still a risk, so this bears watching as well.

Next

The past quarter’s results make us feel as comfortable as we have for a long time, but no less cautious. Investing is a long-term proposition that requires constant vigilance, so we will keep an eye on economic fundamentals, as these are what drives our economy, which will ultimately determine your future prosperity. Without trying to sound like a broken record, it is crucial that you sit down with your advisor and discuss your current situation. Everyone has unique needs, and what works for your friends and neighbors may not be best for you. It’s easy to become complacent when everything seems so rosy, but you need to remain focused and the best way to do this is with the assistance of your financial advisor.

We hope that our next review will be as favorable as this, so until that time, we wish you the best and hope to hear from you soon. 

* An ISM reading above 50 indicates growth and both the manufacturing and non-manufacturing (approximately 2/3’s of our GDP) components remain in the mid to upper 50’s. The importance of this release is that it is a private, non- government, release that polls businesses of all kinds across the country, so government bias is minimized.