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

Market and Economic Commentary

 

4th Quarter 2017
Summary: Overview

The U.S. economy continues to expand at a moderate sub-3% rate driven by a global upturn and the rebound from a manufacturing recession.  After three years of flat earnings, S&P 500 companies delivered accelerating earnings in 2017 and appear on track for double-digit growth in 2018.

Economic data from around the world suggest that a synchronized global expansion is continuing.  With 30% of aggregated S&P 500 company revenues originating from international markets, the global expansion has provided a favorable tailwind driving revenue and earnings growth for U.S. multinationals.

The manufacturing rebound is expected to continue.  The Institute of Supply Management (ISM) Purchasing Manager’s Index (PMI) and Non-Manufacturing Index (NMI) have remained solidly in expansion mode.  Strong international markets have helped improve U.S. manufacturing and production trends.  Production and utilization are up, and signs of increased capital expenditure plans are apparent.

While economic activity has remained steady, the yield curve (3-month T-bills versus 10-year Treasury notes) has flattened but remains positively sloping.  The U.S. might very well have put in a secular bottom in yields.

Despite the strong year in equity markets, the technical indicators do not appear severely overbought.

The main concern for investors remains the overall high valuation of equities.  The market is currently trading at the high end of the valuation range.  While this is no reason to anticipate a decline, it does mean that the economy and earnings need to continue expanding at a steady pace.  Otherwise, valuation multiples will return to the mean via price alone.

 

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

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