Bright Spots Beyond the Eclipse

by:
Portfolio Strategist, MainStay Investments

Despite significant political uncertainty at home and abroad, and notwithstanding words of caution from some central bank heads and business leaders alike, economic growth remains robust and capital markets remain well-bid.

These are still early days, but preliminary estimates of third-quarter gross domestic product (GDP) are up sharply, with the Atlanta Fed’s Nowcast currently projecting a 3.8% annualized growth rate in the U.S.. This increasingly optimistic forecast has been driven largely by improvements in residential investments and retail sales.

Most notably, the consumer was back in a big way. Retail sales reports were a bit disappointing earlier in the year, but a large bounce in July, coupled with sizable upward revisions to both May and June, portrayed a much-improved outlook. It is important to remember that consumer spending typically accounts for two-thirds of GDP, and the uptick in spending is consistent with the sentiment data and an economy operating at full employment. Significantly, this good news arrives just as we head into the important “back to school” shopping season.

Retail Sales Rebound in July

Source: Bloomberg, as of 8/24/17.

Industrial production is also strong, rising to its highest level in three years, helping to spur a rise in capital expenditures, which have accelerated this year, alongside business confidence. Tepid corporate capex may be why productivity has lagged in this recovery. A sustained pickup may lift productivity, extending the very prolonged economic expansion we are still enjoying.

U.S. Industrial Production at Three-Year Highs

Source: Thomson Reuters, as of 8/24/17.

Healthy sales volumes, falling unemployment, and low inflation make up the core building blocks for continued economic growth, which we expect will be visible in company revenue and profit growth in the quarters ahead.

Taken together, this serves as a reminder that while equity market valuations in the United States may be somewhat elevated, the economy can continue growing at a time when the economic expansion is gathering momentum globally, and thus, continuing to support higher prices in the equity markets.

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The information contained herein is general in nature and is provided solely for educational and informational purposes. New York Life does not provide legal, accounting or tax advice. You should obtain advice specific to your circumstances from your own legal, accounting and tax advisors.

All investments are subject to market risk, including possible loss of principal. Investing in smaller companies involves special risks, including higher volatility and lower liquidity. There is no assurance that the investment objectives mentioned will be met. Diversification cannot assure a profit or protect against loss in a declining market.

The information and opinions contained herein are for general information use only. MainStay Investments does not guarantee their accuracy or completeness, nor does MainStay Investments assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. There can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Past performance is no guarantee of future results.

MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services. Securities distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.

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Robert Serenbetz

Portfolio Strategist, MainStay Investments

Robert Serenbetz is the Portfolio Strategist for Strategic Asset Allocation and Solutions Group (SAS). He contributes to investment thought leadership and communication efforts across New York Life Investment Management

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