Full-Throttle 3s

by: , Managing Director, Economist, and Portfolio Manager, New York Life Investment Management; Amit Soni, CFA, Director and Portfolio Manager, New York Life Investment Management

Markets are off to a strong start in 2018, economic data continues to be solid, and sentiment overall is very positive.

Today, we would like to highlight the “full-throttle 3s”, which summarize this strong environment we are in right now. They are: GDP growth, 10-year U.S. Treasury yields, and the unemployment rate in the U.S.

For the first time in this decade, we may see real GDP growth above 3% this year. The economists are expecting a growth number in the mid-2s, but the forecasters underestimated the impact of tax cuts in 2001/2003 as well, and we view tax reform as likely to boost growth beyond the current expectations.

Real U.S. GDP Growth

Source: Bloomberg, as of 12/31/2017. Past performance is no guarantee of future results, which will vary.

With this strong global growth backdrop and rising inflation pressures, we expect bond yields to break out of their current trading ranges. A move towards 3% in the 10-year U.S. Treasury yield should be much more sustainable this time, as higher hedging costs will weaken interest from foreign buyers.

In addition, the labor market continues to be very strong. The unemployment rate is now close to 4%, and with current trends, we expect to see a three-handle on the unemployment rate this year. Surveys show that employers are increasingly finding it hard to fill job openings, and strong labor demand is starting to push up wages.

U.S. Unemployment Rate (%)

Source: Bloomberg, as of 12/31/2017. Past performance is no guarantee of future results, which will vary.

To summarize, the “full-throttle 3s” are key in highlighting the major macro-economic trends for this year: GDP growth of 3%, 10-year U.S. Treasury yields at 3%, and the unemployment rate dropping to a 3% handle.

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Poul Kristensen, CFA

Managing Director, Economist, and Portfolio Manager, New York Life Investment Management

Poul Kristensen, CFA is Managing Director, Economist, and Portfolio Manager with New York Life Investment Management’s Strategic Asset Allocation & Solutions (SAS) Group

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Amit Soni, CFA

Director and Portfolio Manager, New York Life Investment Management

Amit Soni is a Director and Portfolio Manager in the Strategic Asset Allocation & Solutions (SAS) team at New York Life Investment Management. He focuses on quantitative and macro-economic investment research and portfolio management for the asset allocation

Full Bio

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