"Some Highs Despite Low and Slow Economy..."
The second quarter of 2017 saw markets make new highs despite lackluster economic data. The Trump administration has seen strong market performance but has been unable to get two of its main goals coming into the inauguration – healthcare and tax reform – off the ground. This lack of action caused some hesitation in the markets, and when coupled with uninspiring economic data, has resulted in a more uncertain outlook heading into the second half of the year.
Economic data in the US was lower than most had hoped. While we are not in danger of heading into a recession, this recovery is certainly stretching the “low and slow” characterization to its limits. The labor market remains quite tight, but there is a mismatch between skills required for the jobs that are open and the people looking for employment. Despite a low unemployment rate, the average number of monthly jobs added so far in 2017 is the lowest since 2010. GDP growth in Q1 came in at a final figure of +0.7%, the weakest since 2014. Forecasts for Q2 GDP have been steadily revised downward from 3-4% to 1.5-2%. Inflation remains subdued, as do bond yields.
Heading into the third quarter, we remain constructive. The US economy continues to grow below its potential, but it is growing. Economies across the globe should continue on their stronger trajectories. As the recovery stretches on, fears of recession will inevitably ebb and flow, but it is important to keep in mind that recoveries rarely die of old age. “Low and slow” might seem unsatisfying but it is also unlikely to burn out. The consensus view is for one more rate hike this year, but that could come into doubt if GDP and inflation weaken further.
Read the entire 2nd Quarter 2017 Market Recap from Main Management, or review Federated Investors thoughts on stocks' summer doldrums.