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Economic Outlook (Summer '17)

Date: 7/1/2017

Author: Russ Colbert

The stock market has been on its current bull run since March 2008. It was a V shaped bounce from the panic lows of 2008 after the mark-to-market accounting procedure for evaluating assets was changed. Then, as the economy improved, earnings pushed stocks higher until May of 2015. Between May 2015 and November 2016 stocks fell a small percentage due to a drop in earnings and the uncertainty of the elections. Since then, the Markets are up double digits (17% or better). We believe the markets have more to go this year.

We feel this bull market is primarily due to the rebound in profit after the disaster of 2008 and 2009. The gains in profits show the enduring ability of businesses and entrepreneurs to move forward through tighter regulations, more entitlement programs, and increased government spending. Now, with some regulations being rolled back in a number of industries such as energy, along with some reforms in the health care sector, as well as some tax cuts on the horizon, there is a solid chance of a tailwind of growth coming to many businesses. This would certainly help company profits and the stock market going forward. This growth of corporate profits should continue as the acceleration of wage gains and employment rate declines in the near future.

This recovery has helped personal income, consumer spending, household assets, and net worth to reach record highs. Stock markets are at record highs. Corporate profits are close to record highs. Federal tax receivables are at record highs. Unfortunately the federal budget and a number of state and local governments need to get there house in order. Their fiscal management is out of control. Sometimes they like to lecture business people about greedy human nature, but can’t apply the same to themselves. Many businesses and entrepreneurs create new things and build wealth. Politicians redistribute that wealth. Government spending needs to slow down everywhere and work toward getting these deficits under control. We have done it before and we can do it again. The pain caused by a collapsing government is far greater to overcome than some private sector greed. Not to say any of our states or cities resembles Greece and Venezuela, but it sure makes you think about things and how bad they have gotten in other parts of the world.

On a positive note, on average many consumers are in good shape. The labor market continue to heal. Currently the unemployment rate is at 4.4%. That is the lowest since 2007. Some watch what they call the true unemployment rate that includes discouraged workers as well as part-timers who claim they prefer full time jobs. That rate is around 8.6%, the lowest since 2007. Currently wages and salaries are up 5.5% in the past year. Consumer debt burdens are also down.

I know you have noticed a number of retail outlets closing or downsizing over the past few years. Consumer spending habits are changing and shifting toward the internet. The internet sales are booming and have been increasing every year. Shopping on-line with your phone, tablet or computer, and have the product delivered to your door has continued to increase each year. So the brick and mortar retailing will continue to grow more slowly and warehouse space will expand.

Currently, we see moderate growth for the near future. When we get the health care bill or a new tax bill passed, one or both, should stimulate the stock market and economy. I hope we see something before the year end that we can live with. Otherwise, stay the course. Things still look good going forward.

If you have any questions or need a free portfolio review to keep you on track with your investments or retirement plan, please call me.

Russ Colbert
Senior Portfolio Manager

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