Thankfully, the first quarter of 2014 is in our rear-view mirror, I was the first to wave it goodbye! After all, it ended with a 2.9% decline in GDP.
Weather was the main culprit for the first quarter decline – it ranks among the 20 lowest growth rates in post-war history. Even more frightening is nearly all other instances of this level of decline align with recessions. While I don’t think the National Bureau Economic of Research plans to declare a recession, the first quarter felt like one.
Fortunately, the economy has thawed and as we look at mid-year numbers, I’m seeing positive economic growth and smooth roads ahead. Here’s what you should know:
1. The first half of 2014 has been ideal despite the economy – the stock market is up 7.1% (through 6/30) and has exhibited relatively low volatility.
2. The yield of the 10-Year U.S. Treasury Note fell from 3.0% to 2.5%, pushing bond prices higher. This mostly resulted from falling global yields and strength of demand relative to supply for high-quality bonds.
4. The slow economic growth of the first quarter should prove transitory with stronger growth over the last three quarters of the year. Big ticket items like auto sales have picked up recently as well.
5. After an average monthly non-farm payroll growth of 231,000 in the first six months of the year, the unemployment rate now stands at 6.1% and the economy has regained all 8.7 million jobs lost in the 2007-2009 recession. Not all is rosy though – there are still a large number of marginally attached workers and workers who are part time but want to be full time.
6. Private sector growth continues to support economic momentum while government budget cuts have become less of a constraint.
7. The U.S. economy is demonstrating strength relative to other major economies facing considerable headwinds, such as the European Union, Japan and China.
8. Stock market worth, or valuation, remains reasonable with the trailing 12 month price-to-earnings ratio of the S&P 500 near its long-term average. I expect valuation to remain stable and the market to continue rising roughly in line with corporate earnings growth, which most Wall Street analysts peg at 9.0% for the year.
9. With interest rates now about half a percent below where they started in 2014, my return expectations for fixed income have been reduced modestly, as rates should eventually move higher with a strengthening economy.
Overall, despite the major hiccup during the first quarter of 2014, the economy is on the right track and most economic factors are moving in the right direction. What changes have you noticed in the 2014 economy so far?
No comments:
Post a Comment