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It’s the 2nd Longest Economic Expansion in U.S. History – How Long Can It Last?

Posted by Michael J. O'Connor | CWS®, Vice President Investments
June 6, 2018

How Long Can the Second Longest Expansion in US History LastThrough April of this year, this economic expansion is now 106 months old. If the US economy continues to grow through May – which seems all but assured – it would make this economic expansion the second longest in US history. Looking out even further, if the economy continues to grow through July 2019, it would become the longest period of growth in the history of the country.

There’s a real chance it could happen – in a recent poll of global fund managers by Bank of America Merrill Lynch, only 13% of them thought a recession was likely in the near term. Using Corporate America (earnings) as in indicator, the numbers also support the case for more growth: in Q1 2018, the blended earnings growth rate for S&P 500 companies is 24.5% as of this writing, which would mark the highest earnings growth rate the economy has seen in nearly eight years.

One might say, ‘well, earnings only jumped because of the tax cut.’ Fair point, but the data also shows that revenues saw a substantial growth rate in the first quarter, at +8.3%. That’s the best revenue growth rate since 2011, and it was broad-based – all eleven S&P 500 sectors are reporting year-over-year growth in revenues. 

Looking ahead to future quarters, analysts are currently projecting earnings growth in the double-digits in every quarter of 2018. Based on these expectations and the numbers above, it is difficult to make the case that the US economy is struggling to stay alive. Quite the opposite, in fact.

How Has the Expansion Lasted this Long? Can It Continue?

One of the reasons the US has arguably been able to sustain growth over this long stretch is that there has not been a year (or years) of above-average growth. There has been no period of overheating, in other words. Since June 2009, we’ve seen mostly modest GDP growth rates, low inflation, very little wage growth, and many businesses and individuals reluctant to take new risks in light of the 2008 financial meltdown.

Without explosive growth and high rates of inflation, the Federal Reserve was able to stay out of the way as well, keeping interest rates near zero for several years. This accommodative monetary policy stance arguably could be aiding the economic recovery, or at least it did not serve to inhibit it.

Today, the Federal Reserve appears to be a gradual path of rate increases, which would normally serve to cool the economy and tighten the levers on borrowing. But there is another factor in play that could counteract the Fed’s tightening: Washington. The government is poised to borrow heavily and tax less this year, with the tax bill now law and a recent bipartisan agreement that promises to ramp-up spending. Typically, such fiscal policy stimulus would be reserved for more challenging economic times, but the administration seems bent on juicing the economy even more. With corporate earnings poised to deliver a big year, and more stimulus coming from the government, it is difficult to make a recession case today. In short, the economic expansion could very well continue, and may even have a decent chance of being the longest expansions ever.  

Is Your Portfolio Positioned for What Lies Ahead?

The US economy could continue to grow, but that doesn’t mean the party will last forever. The 1991-2001 boom was the longest economic expansion ever, and we all remember how that ended with the tech bubble bursting. Today, stocks are valued fully but are not near levels seen when the tech bubble burst. The forward 12-month P/E ratio for the S&P 500 is 16.4, which is above the 5-year average (16.1) and above the 10-year average (14.3). Not crazy expensive, but also not cheap.

For investors, a diversified portfolio designed to participate in the upside – but also to weather any major downturn – could strike an appropriate balance. How is your portfolio currently positioned? To have a Wealth Manager evaluate your asset allocation and offer you our best ideas, just reach out to us directly at 1-800-541-7774 or start a conversation over email at wealth@wrapmanager.com.


Opinions expressed are as of May 31, 2018. Diversification does not ensure a profit and may not protect against loss in declining markets. This material is not intended to be relied on as a forecast, research or investment advice, and is not a recommendation, - or solicitation to buy or sell any securities or to adopt any investment strategy.


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