News & Insights
October 2017 – New Stock Market Highs: How Much Longer Can It Last?
YorkBridge Investment Committee
One of the best cyclical bull markets of our time has been one of the least loved, as investors who suffered through the near-collapse of the financial system in 2008 fought through their PTSD to get invested, ready to run to cash at any provocation. As the aged bull climbs deeper into its ninth year, making new highs with the S&P 500 up 12+% through the third quarter of this year, professional investors are intently scrutinizing economic and market data for signs of the end.
By almost all measures, we are in the late stages of the economic cycle with financial conditions at their strongest and possibly peak levels– double-digit earnings growth, record low employment at 4.4%, jobless claims at a 45-year low, high consumer confidence, low inflation that continually defies Fed expectations of inflationary wage growth, an ongoing, synchronized world recovery propelling company earnings and markets higher.
Market fundamentals have been strong, overcoming Fed tightening and its own overbought condition, as earnings growth continues and multiples expand. Inflation, though not dead, remains dormant, while inflation watchers and students of history warn that the the lagged effect of tight labor markets on wages could mean trouble in ’18.
Tax reform is back on the table, too, and that could be stimulative if key components are enacted: a corporate tax rate cut from 35% to 25% (the plan calls for 20% but compromise is likely) would dramatically and positively impact many company’s earnings, and repatriation of offshore earnings could also boost earnings.
Despite the current administration’s dismal record of getting legislation passed, tax reform has long been a major goal of Republicans, and with bipartisan support of tax repatriation already in place, something could actually get done. Timing would likely be late spring next year as the bill’s scope and complexity make year-end talk unrealistic, and the expected intensity of midterm electioneering means it cannot drag into summer.
Ironically, more stimulation at this point in the cycle could very well be counter-productive, hastening the rise in interest rates, and slowing an economy already in slow-growth mode of 2-2.5%, provoking new talk of recession. That, however, is likely next year’s second half business, and for now, it looks like the market can continue to move higher as fundamentals remain supportive.
As always, we at YorkBridge Wealth Partners remain vigilant and focused, watching developments closely, trying to understand what it all means for you and to position your portfolios accordingly.
Please don’t hesitate to contact any one of us at any time if you have questions or concerns.
The Information contained in this document is based on data received from third parties which we believe to be reliable and accurate. YorkBridge Wealth Partners, LLC has not independently verified the information and does not otherwise give any warranty as to the truth, accuracy, or completeness of such third party data, and it should not be relied upon as such. Any opinions expressed herein are our current opinions only. YorkBridge Wealth Partners, LLC is an SEC Registered Investment Adviser under the Investment Advisers Act of 1940 (“Advisers Act”). Registration of an investment advisor does not imply any specific level of skill or training. The information contained in this document is to assist with general planning. Please consult with your own tax advisor and attorney for more specific information.