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Third Quarter 2017 Economic & Market Review Now Available

by The Gould Asset Management Team

Note: This post is an excerpt from Gould Asset Management’s Economic and Market Review for the Third Quarter of 2017. The excerpt is posted here for the benefit of our blog subscribers.

US Economy Marches Forward at Measured Pace; Hurricanes’ Impact Felt

Q2 GDP rebounded after a relatively weak first quarter. Second quarter readings came in at a 3.1% annualized rate, driven by strong consumer spending. Although Hurricanes Harvey and Irma will impact third quarter growth, reconstruction activity and federal hurricane relief efforts should help boost the economy next quarter.

Showing its first signs of life in several months, core inflation ticked up 0.2% in August, which may soothe some concerns of a broad slowing. It will take more readings, however, to determine if the pickup can be sustained.

Consumer confidence fell in the wake of the Texas and Florida hurricanes, but remained relatively high at 119.8 in September. The labor market was a bright spot, with fewer saying jobs are hard to get.

The headline unemployment rate fell to 4.2% in September despite the first decline in nonfarm payrolls in seven years, a dip largely attributed to hurricane effects. Wage growth, which had been stagnant much of this year, spiked 0.5% last month, another sign of a tightening job market.

The housing sector had trouble building momentum going into year-end, and Harvey and Irma dampened the outlook further. Going into the fourth quarter, it seems unlikely housing will be a significant near-term contributor to economic growth.

In early September, Congress reached a deal to raise the debt ceiling and extend government funding for three months. Next on the agenda is a tax reform bill; passage is highly uncertain, and views on its likely economic impact vary widely. Read the rest of this entry »

Second Quarter 2017 Economic & Market Review Now Available

by The Gould Asset Management Team

Note: This post is an excerpt from Gould Asset Management’s Economic and Market Review for the Second Quarter of 2017. The excerpt is posted here for the benefit of our blog subscribers.

US Stocks Move Steadily Higher, Show Little Regard for Political Uncertainties

Despite increasing political turbulence, US stocks marched methodically higher in the second quarter, with the S&P 500 stock index rising 3.1% for the period. The strong gains, combined with robust first quarter returns, puts US stocks up 9.3% for the year. With the political storm at times seemingly growing by the day, the stock market’s orderly rise was a welcome and reassuring surprise to many investors.

The technology and healthcare sectors remained red hot and have now risen 14.3% and 16.0% respectively on the year. If you take just Facebook, Amazon, Netflix, and Google (now Alphabet)—known as the FANG stocks—and add Apple and Microsoft to the mix, the group has risen an average of 22% in 2017 and accounts for nearly one third of the S&P 500’s total return on the year. Gains in the healthcare sector have been equally impressive and seem to be driven by increasing skepticism among investors that significant healthcare reforms will be passed by Congress.

Large cap stocks continued to outperform mid and small cap stocks in the second quarter, as the Wilshire 4500 index rose 2.9%, compared to the S&P 500’s 3.1% gain. This continues a trend that began in the first quarter of the year and can be traced in part to the surge of some of the large technology firms mentioned above, which have a big impact on capitalization weighted market indices. A weak US dollar, which fell 2.3% in the second quarter, also boosted large-cap returns, as profits earned abroad translated into more US dollars for large multinational firms.

Market volatility readings hovered near all-time lows on the quarter, providing formal confirmation that markets were in fact as tranquil as they seemed. The VIX volatility index spent most of the quarter under 11, and even dipped below 10 on occasion—not too far off from its all-time closing low of 9.3.

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First Quarter 2017 Economic & Market Review Now Available

by The Gould Asset Management Team

Note: This post is an excerpt from Gould Asset Management’s Economic and Market Review for the First Quarter of 2017. The excerpt is posted here for the benefit of our blog subscribers.

US Enters 2017 on Positive Note
Overall, the US produced encouraging results throughout the first quarter, indicative of an economy that has made great strides since the depths of the recession. Yet some cautionary readings also appeared, reflecting the need for vigilance in the months ahead.

Multiple measures indicate the US is nearing full employment. The jobless rate fell to 4.5% in March, its lowest figure in almost a decade. The number of discouraged and underemployed jobseekers has dropped to post-recession lows as well, indicating many Americans are finding it easier to land full-time work.

Average hourly earnings rose 2.7% over the past year, part of a slow but building growth in wages. A tightening labor market has made it tougher for employers to secure qualified workers. This trend, in turn, could create upward pressure on salaries, as organizations look for incentives to entice strong applicants.

GDP expanded by a healthy 2.1% in the final quarter of 2016, according to the latest estimates. However, current projections place Q1 expansion at just 0.9%, and the figure is unlikely to top 1.5%, even following upward revisions.

Consumer confidence spiked to a 16-year high, part of a surge in overall sentiment following November’s election. Yet puzzlingly, household spending declined over the past two quarters. With consumption fueling nearly 70% of GDP, any persistent weakness here could create headwinds for the economy as a whole.

Trump took steps toward realizing his reformist vision on trade, ordering officials to scrutinize existing trade deals in an effort to reduce the trade deficit. However, talk of an all-out trade war with nations like China may be premature. President Trump currently seems hesitant to carry out some of his more aggressive campaign promises, like his pledge to impose a 45% tariff on Chinese imports.

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Fourth Quarter 2016 Economic & Market Review Now Available

by Scott Smith, CFA

Note: This post is an excerpt from Gould Asset Management’s Economic and Market Review for the Fourth Quarter of 2016. The excerpt is posted here for the benefit of our blog subscribers.

US Stocks Jump as Markets Digest Trump’s Surprise Presidential Victory 

US stock markets finished 2016 on a strong note, rising 3.8% for the quarter and 12.0% for the year, as measured by the S&P 500 stock index. Donald Trump’s surprise win proved to be the defining event of the quarter. Markets surged on the prospect of increased infrastructure spending, lower personal and corporate tax rates, and relaxed regulatory requirements. Investors are saying that taken together, these measures will accelerate US economic growth.

Financial stocks surged on the quarter, rising 21.1% as measured by the S&P Financial Select Sector index, amid rising interest rates and expectations of a friendlier regulatory environment. Banks’ lending profits stand to benefit should the yield curve continue to normalize.

Mid and small cap stocks capped a remarkable year that saw the Wilshire 4500 index rise 6.5% on the quarter and 18.5% for the year. The strong performance comes on the heels of two consecutive years (2014-2015) in which large-cap stocks soundly outperformed mid and small caps, illustrating the benefits of broad diversification across all sectors and capitalizations of the US stock market.

Market volatility was modestly higher in the fourth quarter, with the VIX volatility index reaching a high of 23 just prior to the November elections, before falling back to more subdued levels (low teens) at year-end.

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