ECONOMIC AND STOCK MARKET COMMENTARYSubmitted by Ralicki Wealth Management & Trust Services on January 24th, 2017
The consumer picture is mixed. On point, retail demand continues to strengthen for Internet related purchases, and auto and building materials dealers are seeing business turn brisk. But activity is lagging badly at brick-and-mortar department stores. This latter shortfall, which is underscored by ongoing weakness at old-line chains (and among their stocks), may remain an issue for some struggling industry heavyweights. On balance, though, the consumer outlook is decent, and sentiment surveys continue to be upbeat.
More of the heavy economic lifting may gradually be assumed by the industrial sector, especially if much of President Trump’s indicated tax and infrastructure spending plans are passed by Congress. But these efforts may take a while to be felt, given the lead times involved. Meantime, recent gains in manufacturing are encouraging, and, if sustained, would be a welcome bridge until the stimulus benefits are fully realized.
Meanwhile, we should be looking at a better year for the economy in 2017. As has been the case during this long upturn, though, advances may be modest. To wit, after a lackluster 2016, in which GDP growth likely fell short of 2% (GDP data for the fourth quarter were due out after we went to press), we have been looking for growth to average about 2.5% this year and 3% in 2018. Thereafter, with the expansion nearing a decade in length, selective pressures may emerge, especially if more restrictive trade policies are adopted and the Federal Reserve raises interest rates at regular intervals, as we expect.
Overseas developments will play a role, particularly as relations with Russia and China are uncertain. A skilled approach will be needed to navigate these choppy waters if our growth targets are to be met.
Earnings season is well under way, and, in keeping with recent trends, results continue to be fairly good. This should mean an improving bottom-line performance, overall, in 2017, which would be especially helpful with valuations now so rich.
Meanwhile, the stock market is looking fatigued, with the major indexes moving just gently higher thus far this year, as attempts continue by the Dow Jones Industrial Average to surpass the 20,000 mark, as Wall Street awaits new direction from Washington.
Conclusion: We think the bull market can remain in place, but the path to higher prices may be bumpier than in the past, owing to the loftier valuations.