Economic and Stock Market Commentary for the week of June 12, 2017Submitted by Ralicki Wealth Management & Trust Services on September 27th, 2016
Some food for thought has been presented to the economic bulls, namely that the economy, which has firmed up some this quarter, has yet to strengthen to the degree expected a few weeks ago.
Recently disappointing employment growth is part of the story. On point, just 138,000 jobs were added in May, about 25% fewer than expected, while earlier reported gains for March and April were revised downward. Also, the average workweek was unchanged last month; half a million discouraged workers left the labor force; and wage gains slowed. In fact, even the dip in the jobless rate from 4.4% to 4.3%—a 16-year low—primarily reflected a drop in the labor-force participation rate from 62.9% to 62.7%.
Other metrics paint a mixed picture. For example, recent weeks have seen slight gains in manufacturing, moderating growth in non-manufacturing; a month-to-month decline in exports; but a notable increase in personal income. This combination now suggests that the likely second-quarter gain in GDP will be shy of 3%.
There also is uncertainty in Washington, where recent weeks have brought investigations surrounding the White House and continuing partisan strife in Congress. All the while, efforts to push a business friendly economic agenda are faltering. Such endeavors, which include proposals for tax reform, health care revision, and infrastructure revival are critical if forecasts of accelerating economic growth are to be realized.
Global concerns also are heating up. Not only are terror threats increasing and tensions again building in the Middle East, but differences over climate change are further fraying relations with our allies in Europe.
Through it all, the aging bull market perseveres, with late May and early June seeing a succession of all-time highs set by the equity indexes. Supportive earnings and confidence that at least some of the President’s agenda will eventually be implemented are still a tough combination for the chastened bears to counter.
Conclusion: It is hard to fight the tape, but it is also difficult to ignore the elevated P/E’s in place. So while stocks may rise further, the road from here to there could be choppy.