E The Economy: Mostly Good

The economic news continues to be encouraging and investors are taking note, which is one reason stocks are rising. Consumer confidence hasn't been this high since 2000 and people are spending both in stores and online. Job growth is strong, although wages are nearly stagnant.

Overseas economies are improving as well. In 2014-15 U.S. corporate profits coming from the rest of the world fell about three percent annually. In 2016-17 they grew 7.5 percent. Note to our leaders:  trade is a good thing.
Inflation remains low and should stay low for longer than most thought. Unless you are an income investor, that’s good news. True, corporate profits grow at a slower rate than they would if inflation were higher, but interest rates stay low and that bodes well for price-earnings ratios. On balance, low inflation is a positive for stocks. 

No wonder stocks have been rising. We have had a good run and through much of it, strategists have been calling for a sell-off or worse, an end to the bull market. It was John Templeton who said bull markets don't die of old age, they die amid euphoria -- think dot-com stocks in 2000. No doubt some tech stocks have soared to levels well beyond those justified by a realistic earnings outlook. Maybe some others as well, but not most. 

It’s not all good news. Wealth inequality continues to rise and the rich are getting richer. Stocks have tripled since 2009, good news for those over the age of 50 because about half of that group owns stocks. Meanwhile, the median wealth of those under 35 has dropped by 20 percent. Instead of investing and letting the power of compounding work for them, many are paying off student debt. Past generations didn’t graduate with such high levels of debt. 

Younger Americans are also more skeptical about stock ownership. I can see why. In their young lifetimes, they have seen two bear markets where stocks were cut in half. Compare that to 1900 to 1999 where there were only two periods in which stocks were cut in half (although the Great Depression was clearly much worse than all other periods). 

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Disclaimer: David Vomund is a fee-only money manager. Information is found at vomundinvestments.com or by calling 775-832-8555. Clients hold the ...

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Tony Hayes CFA 6 months ago Contributor's comment

Dear David,

The two vectors that impact the value of the DJIA are dividends and 30 year T Bond Yiel

Re-balancing is slowing the rise of DJIA Price but Santa should help

Please see :-

www.talkmarkets.com/.../at-24329-price-of-djia-at-44--discount-to-value-of-43533

Regards

Tony