Chief Investment Officer, Eugene Yashin, provides perspectives on the economy, financial markets, and strategies for stock investors. Hurricane-related disruption could reduce economic growth in the near-term. The prospect of tax reform helps fuel a rally in equity markets. Bond yields can rise without hurting stock prices, in our opinion.
Healthy earnings growth suggests to us that there is still upside in U.S. equities. We are encouraged that markets have shown a surprising level of stability given geopolitical and economic risks. Our quantitative assessment shows stocks that blend growth and value characteristics (growth at a reasonable price, or GARP) are well positioned for the late phase of economic expansion.
In a time of accelerated global growth, we believe investors can benefit from foreign exposure. Valuations in Europe, Japan, and emerging markets (EM) all look cheap relative to the U.S.
Despite the US Federal Reserve (Fed) raising rates, we believe bonds may prove resilient.
We expect the risk of a pullback in equity markets to continue, but we also believe the odds of a new bear market are low – PIMCO estimates 10% or less chance on recession over the next 12 months.
The importance of having an asset allocation well suited for your objectives and risk tolerance, as well as being able to focus on the long term, cannot be overemphasized.
We believe the economy is still very constructive and growing. However, the US economy may have lost some momentum recently. Consumption seems to be weakening. Car sales were weaker than expected in June, and retail sector activity declined with slippage in receipts at restaurants, sporting goods outlets, and department stores. However, in other parts of economy the situation is much brighter. Not only has manufacturing and non-manufacturing data strengthened, but industrial production, factory capacity utilization, housing starts, and building permits increased in June as well. Our sense is that business activity should strengthen during the third and fourth quarters. This could enable GDP growth— even with some retracement on the consumer side—to average 2.5%, or so. We think this solid performance will continue into 2018.
The economy is still growing. Unemployment is low, inflation is tame, long- term interest rates are near their low-point for the year, and US equity markets remain near-record highs. Looking ahead, we see no reason to change our out- look. We expect the stable-growth economy to continue, as consumer spending should continue to support economic growth along with rising business invest- ment.