As we stated in our last blog, we believe the current bull market may well run for another 2-3 years based on current indicators (not just the “Trump Bump”). But why?
Historically, an economic recession occurs between 45 to 57 months following the inception of an economic expansion. Characteristically, these recessions tend to be preceded by equity bear markets (declines of 20% or more) which are generally considered a “leading indicator”.
With the current market environment, there has been no bear market and/or recession since March of 2009 (almost 95 months). So both an equity bear market and economic recession are statistically long overdue.
Despite that historical trend, there are few facts (i.e.: leading indicators) available to support that a recession is imminent. We believe the extraordinary severity of the most recent “consumer debt fueled” recession along with the extensive level of subsequent government intervention (via quantitative easing) have significantly disrupted the economic landscape and customary cycles.
Key Indicators Point to Continued Economic Expansion
It is a well-accepted fact that over two-thirds (68%) of GDP in the U.S comes from consumer spending, which in turn is largely impacted by the health of the labor market. That said, we believe the following key indicators point to a continued economic expansion:
- Unemployment Claims—For December, unemployment was 4.7%, well below the long-term average of 5.8%, and also below the rate the government considers to be full employment (5%)
- Interest Rates and Inflation—Since the U.S. Presidential Election in November, we have seen increased interest rates and inflation, which supports continued expansion. We have long expected these increases and view them as both inevitable and healthy, to a point
- Average Hourly Earnings—For December, the annualized average hourly earnings, was up 4.63% versus the long-term average of 2.42%
- Consumer Confidence—The Conference Board’s measure of consumer confidence is at a 15-year high, well above its 50-year average
- Housing Market—Both the Survey of Builder Confidence and the Index of Prospective Buyers indicate continued strong demand. Housing accounts for between 15 and 18% of GDP
- Business Activity—At 61.4%, the ISM Business Activity Index indicates a solid outlook
Be Prepared — The Bears Will Return Eventually
Despite the positive short-term outlook, it’s only a matter of time before the bears return. So now is a great time to prepare your portfolio so you’re not caught off guard.
You can begin by checking your risk tolerance level with our new—and free—risk number tool. Think of it as your sleep number, but for risk. Then, you can work with a wealth management advisor to build or modify your portfolio to match your risk comfort zone.
And as always, you can click here to contact us with any questions you may have and we’ll get back to you with a no-strings-attached answer.