Economic and Stock Market Commentary for the week of January 9, 2018

Alex Ralicki |

The economy is starting out the new year in fine form, extending the positive momentum in place since last spring. For example, recent weeks have seen strength in a range of housing categories, holiday sales, and manufacturing across the nation, with this latter sector buoyed by gains in new orders, production, exports, and pricing. Such broad-based improvement is particularly notable given that the business expansion is nearing a decade in duration, making it one of the longest on record since the end of World War II. Meanwhile,

The upturn’s underpinnings look increasingly sound, with the key industrial and consumer markets showing few ill effects of advanced age. In fact, the recently enacted tax law changes appear to be giving the economy a psychological lift, which is being furthered by announcements that a number of companies will use some of their added income to upgrade plants and increase employee compensation.

That said, we see reasons for caution in the new year. Our hesitancy to lift our economic projections materially reflects the uneven effects of the tax changes, with high-tax states seeing less of a bounce from such adjustments. A recent dip in consumer confidence may reflect a desire by some households to see how the overhaul will affect them. Then, there is the weather, which again may restrain growth in the first quarter. All told, we see GDP rising by close to 3% in 2018.

Meanwhile, upcoming news will come from earnings and Federal Reserve actions. Here, the outlook is generally positive, with most companies likely exceeding their forecasts, while the lead bank figures to approach monetary restraint with a careful and deliberate eye. So,

The bull market is still rolling, with records routinely falling, as optimism, so widespread in 2017, appears likely to remain in vogue early in the new year.

Conclusion: We think the careful accumulation of quality stocks with decent and growing dividend streams is a good way to proceed in a market that is pricey, but not devoid of opportunities. Please refer to the inside back cover of Selection & Opinion for our statistically-based Asset Allocation Model’s current reading.