Market and Economic Commentary - IMVA Market and Economic Commentary - IMVA

Market and Economic Commentary


2nd Quarter 2018
Summary: Overview


The U.S. economy continues to advance, with unemployment at decade lows.  Industrial production and productivity continue to increase, and growth in retail sales has appeared (finally).  The Small Business Optimism Index increased in May to the second highest level in the NFIB survey’s 45-year history.

The “Synchronized Global Expansion” may be maturing, with growth in non-U.S. and emerging markets decelerating somewhat.  The trade-weighted U.S. dollar has strengthened, and foreign currencies generally have weakened.

The yield curve (3-month T-bills versus 10-year Treasury notes) has flattened but remains positively sloping.  The U.S. has likely put in a secular bottom in yields.

Federal Reserve Chairman Jerome Powell, recently characterized the U.S. economy as being in “great shape”, reflecting steady growth and modest inflation.  These trends appear to give the Fed more cover to continue raising/”normalizing” interest rates in 2018 and 2019.  Recent activity in the markets suggest that investors are concerned that the Fed could overshoot.

The February 2018 stock market correction reduced investor optimism and P/Es.  We view these developments as positives.

The S&P 500 currently is trading at approximately 16.6x forward estimates, a level that is much closer to the ten-year average, and one that appears to be supported by earnings trends and interest rate policy.  Looking ahead, actual positive earnings and revenue growth is paramount.

Download the full report in pdf here: IMVA Investment Review-July 2018

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