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

Market and Economic Commentary

 

1st Quarter 2018
Summary: Overview

 

The U.S. economy is expected to continue growing between 2% and 3% for the foreseeable future.  The unemployment rate has remained around 4%, the lowest rate in 15 years.

Manufacturing has continued to expand in the United States thus far in 2018.  The Institute for Supply Management Index (ISM) recently hit a new high 10-year high.

Strong economic data, along with the prospective impacts of lower taxes and fewer regulations, are leading to high optimism among small businesses, many of whom, per NFIB, had been “standing on the sidelines and not benefiting from the so-called recovery.”

On the heels of good economic data and such optimism, S&P 500 Index company earnings are expected to jump from $132 per share in 2017 to $157 per share in 2018.  Corporate profit margins and overall profits are expected to reach record highs this year.  Concerns over tariffs could moderate this optimism.

The Federal Reserve raised rates four times last year, and it is expected to increase rates at least three times this year.  The yield curve has flattened somewhat but not alarmingly (short rates up, long rates less so).  One of the biggest risks the equity market faces is that the Fed raises rates too quickly or unexpectedly, killing confidence and economic momentum.

The other risk the equity market faces is a slowing global economy.  While the U.S. economy continues to expand, the synchronized global expansion that began in 2012 is now leveling off somewhat.

The recent U.S. equity market correction has returned valuations (P/Es) to more reasonable levels.  Continued economic expansion, accompanied by advances in earnings, would help confirm this trend.

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

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