When broader markets drop, many investors are understandably concerned. When markets move up, as they have done in 2017, many investors worry about when they will drop. After being a financial advisor more than 30 years, I have noticed that people like to worry, whether the markets are moving up or down.
Given the onslaught of media negativity and fear tactics being used to sell everything from newsletters to precious metals, the perception that we are constantly on the verge of economic collapse is not surprising. When we get past the hype and rhetoric, we see that now is one of the best times in history to be an investor — and really, just to be alive.
The Facts Dispel Negative Perceptions About the Economy
We have all heard famous phrases that are attributed to people who never uttered them: Marie Antoinette and “Let them eat cake” or Sherlock Holmes and “Elementary, my dear Watson.” Sometimes the phrases are made up, and sometimes they’re corruptions or rephrasing of something that was actually said. “Just the facts, ma’am” is a case of the latter. Jack Webb’s “Joe Friday” character typically used the phrase, “All we want are the facts, ma’am” and sometimes “All we know are the facts, ma’am” when questioning women in the course of police investigations. But he never said, “Just the facts, ma’am.”
When we look at just the facts regarding our economy, we get a very different picture than the broader perception many have based on what we hear in the press and via social media. We must move away from politics, media hype and social commentary to see where we are, based on just the facts. Once we look at just the facts, we may have an entirely different picture of where we are and where we are going.
Here are some positive facts that demonstrate the current health of the U.S. economy:
- Foreign investments, both in terms of cash and infrastructure, continue to pour into the United States, and corporate cash and profits are at record levels.
- As of November 8th, 2017, the Dow was up 19 percent, the S&P 500 was up 16 percent and the NASDAQ was up 26 percent on a year-to-date basis.
- Factset estimates that the S&P 500’s earnings will grow from $131.58 in 2017 to $145.87 in 2018, up another 11 percent after growing about 10 percent in 2017.
- GDP has grown at 3 percent for the past two quarters, and with tax legislation passed, it is expected to accelerate.
- At 4.1 percent, the unemployment rate is at a 16-plus-year low, which continues an eight-year trend, from 10 percent at the worst point of the Great Recession Manufacturing jobs have rebounded this year back to the levels of 2012 to 2014, and we continue to see re-shoring as companies bring jobs back to the United States that were moved overseas.
- In November, the U.S. economy added 228,000 jobs, which was more than economists expected. Wall Street economists were forecasting payroll gains of 195,000 following the 261,000 jobs added in October. The unemployment rate is at its lowest level in more than 16 years!
While much of the market growth has been attributed to anticipated reductions in tax rates and regulation, we will have to see what actually transpires in the next six months. Having said that, there are not a lot of alternatives to the broader equity markets as fixed income and bank accounts continue to offer nominal returns, overseas investments present their own set of risk and real estate is not a viable alternative for many investors.
We See Strong Potential for Continued Growth
As we continue to see record earnings by companies and large amounts of cash overseas that potentially could be repatriated if there is a favorable tax situation, we believe there is strong potential for continued market growth. As always. we recommend a diversified investment approach based on your personal needs, objectives and risk tolerance. We have developed and refined an investment process that takes into account unexpected changes in the markets and economy so that you can maintain and enhance your standard of living.
If we take a broader view of the world today, we see how great a time it is to be alive and to be an investor. Technology continues to create opportunities that never existed for those who have the courage and insight to move behind all the negative hype.
Our Lives Have Improved Drastically — And Will Get Even Better
“The world has never been a better place to live in,” says science writer Matt Ridley, “and it will keep on getting better.” He provides these facts to back up his statement:
Compared with 50 years ago, when I was just four years old, the average human now earns nearly three times as much money (corrected for inflation), eats one-third more calories, buries two-thirds fewer children and can expect to live one-third longer. One reason we are richer, healthier, taller, cleverer, longer-lived and freer than ever before is that the four most basic human needs — food, clothing, fuel and shelter — have grown markedly cheaper. Take one example: In 1800, a candle providing one hour’s light cost six hours’ work. In the 1880s, the same light from a kerosene lamp took 15 minutes’ work to pay for. In 1950, it was eight seconds. Today, it’s half a second. In these terms, we are 43,200 times better off than in 1800.[1]
The reality is that humans are actually safer, wealthier, healthier, freer, less hungry and more literate than ever before, Johan Norberg argues in his 2017 book Progress: 10 Reason to Look Forward to the Future. We all have access to better technology, health care and standard of living than ever before.
As we approach the mid-term elections, we will no doubt hear more political rhetoric presented as economic facts. It is important to note that what is good economic policy is not necessary good social policy and therefore we must differentiate between the two when making wealth management decisions.
We are here to help separate fact from fiction and assess what is important to you. We do believe that there are great investment opportunities for those who are prepared, and as always, there are potential pitfalls for those who are not. As always we are here for you to help sort through the noise to determine what is relevant to your situation. Feel free to contact us any time, without cost or obligation.
Randy Carver, RJFS registered principal and President of CFS., Randy.carver@raymondjames.com or (440) 974-0808.
November 2017
