Are We Embarking On A New Economic Growth Trend?
CAMS Weekly View from the Corner – Week ending 12/15/2017
December 18, 2017
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2017 is 3.3 percent on December 14, up from 2.9 percent on December 8. https://www.frbatlanta.org/cqer/research/gdpnow.aspx?panel=1
Here we are on the cusp of ending yet another year on the calendar and with this today’s Weekly View will be the last of 2017. We wish you a joyful holiday season and trust some downtime in your chosen profession will help recharge the proverbial batteries for what should be an interesting 2018.
As we put a wrap on this year we have been emphasizing in recent Views that markets are unequivocally expensive when looked at through several historical measures of valuation. Importantly, with this observation is the reality that a historically expensive asset market place does not guarantee imminent pricing issues.
An important antidote to downward price adjustments in light of valuation levels is continued solid economic growth leaving in its wake stronger earnings growth rates for companies and individual wage earners.
Since the Great Recession we have not experienced three successive quarters of GDP growing three percent or higher. In prior instances when growth had exceeded the three percent threshold it quickly faded in follow-on quarters. It appears we may be embarking on a change of this near decade long economic result.
The above picture is a bar chart representing the annualized rate of growth of GDP per quarter for the last ten years. As we can see anytime growth had begun to ramp up, in particular north of three percent, we would see a quick trend reversal.
The two far right bars represent 3.1% growth in the second quarter and 3.3% growth in the 3rd quarter. This is the highest growth we have seen since late 2014 at which time GDP was trending down off higher levels posted in early 2014.
Speaking to our observation theme, the Federal Reserve District Bank of Atlanta calculates an on-going “GDPNOW” indicator focusing on the expected growth of the current quarter. Per our header quote the GDPNOW indicator is currently pointing to continued growth north of three percent.
If this materializes it will represent the first multi-quarter run of three percent growth since the Great Recession. This is the type of on-going growth we need to see to help support our historically expensive markets and is necessary through 2018.
Again, this will be the last Weekly View of 2017 and we want to wish you a joyous holiday season and prosperous new year.
I wish you well…
If you missed our last webinar, you’ll find the presentation materials below as well as a link to the full presentation replay.
Director, Market Research & Portfolio Analysis
Portfolio Manager, CAMS Spectrum Portfolio
H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP). This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”. A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.
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