For the remainder of the year, and most of the next, two factors are going to be driving market movement: the real economy, and political drama of all sorts. While the two are interwoven to some extent, only the real economy matters.
Political drama, in the absence of actual policy and legislative changes, doesn’t move the needle in any meaningful way. It’s all just noise.
If Trump was impeached tomorrow, nothing would change. Pence is not going to implement any wildly different economic policy. A divided Congress is not going to suddenly get together to pass any sweeping legislation. It will only add another exhausting chapter to the never-ending saga we’ve been watching for three years but, with the exception of short-term volatility, it won’t affect the strength of the economy and the direction of the market.
Cut past the noise and look at the real economic data, and you’ll see an economy which is still relatively robust and strong.
While GDP has slowed to roughly 2% annualized, it’s important to remember that growing less-quickly is not the same thing as a recession (negative growth), no matter how badly pundits want you to think it is. This rate of growth also matches the average for the years 2009-2015.
Unemployment rates are about as low as they can go, sitting at 3.5%. Minority unemployment rates are at or near all-time lows, as well. In addition, 95.2% of those without a high school diploma – those who, it was thought, would be replaced by automation and would never find work again – are employed.
Wages are up 4.3% over the last twelve months, outpacing the current 1.7% rate of inflation. What that means is that workers have more money to spend and, when the consumer is strong, the economy is strong.
In spite of the trade war with China, US international trade is largely unchanged. What has changed, however is who we trade with. Trade with China is down 13.2%, but trade has increased with Vietnam (+31.5%), Taiwan (+14%), India (7.6%), and South Korea (6.8%). The longer this trade spat continues the more painful it will become for China, as Americans find alternatives for producing, shipping, and marketing goods. Yes, it’s not painless for the US, but our economy is so large and agile, it can adapt more easily to the changing landscape.
As recently as 2005, the US imported up to eleven times the amount of petroleum product that it exported. Today, the US is a net exporter. This development has had a revolutionary impact on the American economy and foreign policy, which will continue for the foreseeable future.
While we think the next twelve months in the market will continue to be volatile and sometimes sideways, we feel the overall direction of indices will trend upward. Remember to tune out the noise as much as possible, and remain focused on the fundamentals. Work with your independent financial advisor to make sure your investments continue to match your overall objectives, and make changes where necessary.
Stephen Kyne, CFP® is a Partner at Sterling Manor Financial, LLC in Saratoga Springs and Rhinebeck. Securities offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Advisory services offered through Sterling Manor Financial, LLC, or Cadaret, Grant & Co., Inc., SEC registered investment advisors. Sterling Manor Financial and Cadaret, Grant are separate entities. This article contains opinion and forward-looking statements which are subject to change. Consult your investment advisor regarding your own investment needs.
