Broker Check

Economic Update: Q2 2016

June 28, 2016
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I put a great deal of importance on education, for myself, for my family, and for my clients. I strongly believe education is imperative for us to succeed in life, and I make it a priority to remain up-to-date on the topics that imperative to understand as I walk through life’s journey with my clients.

Because I regard education so seriously, I began hosting Quarterly Conversations events last year and have focused on a new topic each quarter that I feel are important for my clients and their loved ones to learn more about. In light of all the summer travel currently underway, I’m providing this quarter’s Quarterly Conversation event digitally with a point of view on the economy, markets and investment strategy based on research and insight from one of my investment partners, Jackson.

I recently attended a meeting where I was fortunate to hear from one of Jackson’s insightful speakers, Fritz Meyer, a well-known economist and market commentator who has appeared on CNBC, BloombergTV and the Fox Business Network. To read more about Mr. Meyer, you can access his bio online. I truly enjoyed his insight, and I particularly appreciated his facts and figures, some of which I wanted to describe to you in abbreviated format below.

Insight Gathered from Fritz Meyer’s Point of View

  • The market has remained relatively flat for the past 18 months, even though its day-to-day movement has been volatile, likely due to geopolitical news, reinforcing the importance of remaining focused on the long-term.[1]
  • According to Standard & Poor’s Corporation, Between December 2011 and December 2014, the stock market saw 77% growth. The large dips seen in August 2015 and February 2016 have since largely corrected after that nearly uninterrupted four-year recovery run[2]. Again, this is why we like to focus on long-term financial goals and pay less attention to the day-in and day-out noise often fueled by the media.
  • Of the 10 sectors included within the S&P 500, only two of them saw earnings in the red in 2015. The other eight sectors, along with 91% of the S&P 500, rose 5%.[3]However, media outlets only reported that stocks fell and earnings were down. This speaks to the importance of diversification and the appropriate asset allocation in your portfolio.
  • Regarding the economy, Q1’s GDP saw weakness due to investments and imports, but strong growth in personal income and retail sales, among other elements. There were a record number of job openings, a new low unemployment rate, rising housing starts and strong car sales in the first quarter as well.
  • Consumer income is growing almost as quickly as it did prior to the recession of 2008-2009.[4]Consumer spending, specifically personal consumption expenditures, currently drives the largest segment of U.S. economic growth.[5] Reports of income and wage stagnation are fictional, and purchasing power is on the rise.[6]
  • Real wages, as depicted by average hourly earnings, have seen growth at rates higher than before the recession because of the decline in inflation.[7]They are currently at an all-time high.[8]
  • While the media reports we are losing manufacturing jobs, they fail to focus on the fact that many of those jobs have been replaced by equal- or higher-paying jobs in sectors like health services, professional services, and business services.[9]
  • Brick and mortar stores, like Macy’s, are seeing declines in sales which are heavily reported by the media. However, overall, retail sales are booming thanks to the channel shift to online shopping. In fact, Non-store retailers have seen 10.2% year-over-year growth.[10]
  • Housing’s recovery has been slower, but it is on the rise, growing each of the last six quarters.[11] More growth is necessary to get to “normal” inventory.
  • Economists surveyed in early May see an average +2.3% rate of quarterly GDP growth ahead, in line with the +2.2% actual two-year GDP growth.[12]
  • The U.S. has seen record job openings as of May 2016 with strong real wage and income growth. Job growth is apt to decline as the unemployment rate sinks further.[13] In fact, the U.S. is now the most productive country in the world with an increasing work force[14], giving us favorable long-term demographic prospects compared to the world’s major economies.[15]
  • While the media often reports that Americans believe their children may not be able to live as well as they do, Warren Buffett disagrees. According to the renowned investor, “The babies being born in America today are the luckiest crop in history… America’s golden goose of commerce and innovation will continue to lay more and larger eggs. America’s kids will live far better than their parents did”[16]
  • The United States does have the highest corporate tax rate, but overall, the U.S. has one of the lowest total tax burdens among developed economies.[17]
  • Regarding oil, there is no price recovery in sight. U.S. production is down only slightly so far, and oil continues to strongly impact inflation. Supply has now outstripped demand for 20 consecutive months.[18]

While I know this is a lot of specific information, it all lends itself to the same overall messag. Remaining fully invested and committed to your long-term investment strategy is one of the smartest decisions you can make to help you reach your financial goals.

When I work with my clients on developing a portfolio that meets their needs, risk management through diversification, asset allocation and rebalancing is of utmost importance on my end. By using these strategies, a portfolio is more likely to be better protected against the inevitable volatility that the markets experience. However, by pulling investments out during bear markets, you’re only losing out on the potential recovery and long-term gains the market may see as it corrects. While past performance is no indication of future results, the 50,000-foot view of stock market’s history tells us that inevitably, it will see ups and downs, but its trajectory is constantly moving forward.

I would love to speak with you more about remaining committed to your long-term investment strategy and focusing on your financial goals. If you have any questions or would like to discuss anything from this Quarterly Conversation virtual update, please feel free to contact me at 217.971.1256 or at sandy@ssfinancialgrp.com.

[1] Source: Standard & Poor’s Corporation. Data through May 6, 2016. As provided by Fritz Meyer’s Point of View, May 2016.

[2] Source: Standard & Poor’s Corporation. Data through May 6, 2016. Total return includes dividends reinvested.

[3] Source: Standardd & Poor’s Corporation. Data as of May 4, 2016.

[4] Source: Bureau of Economic Analysis, monthly data through March 2016.

[5] Source: Bureau of Economic Analysis. Data through March 2016.

[6] Source: Bureau of Economic Analysis. Quarterly data through December 2015.

[7] Source: Bureau of Labor Statistics and Bureau of Economic Analysis. Data through April 2016. Inflation data through March 2016. Average Hourly Earnings includes 100% of non-farm private employees, and excludes benefits and employers’ share of payroll taxes.

[8] Source: Bureau of Labor Statistics. Data through March 2016.

[9] Source: Bureau of Labor Statistics. Employment data through December 2015.

[10] Source: U.S. Census Bureau. Data through April 2016.

[11] Source: Bureau of Economic Analysis. Data through March 2016.

[12] Sources: Bureau of Economic Analysis. Actual data through March 2016. The Wall Street Journal survey taken May 2016.

[13] Source: Bureau of Labor Statistics. Data through April 2016.

[14] Source: Bureau of Labor Statistics. Monthly Labor Review December 2013.

[15] Source: United Nations Population Division. World Population Prospects, the 2015 Revision.

[16] Source: Barron’s. March 7, 2016.

[17] Source: OECD, Revenue Statistics. 2014 edition. Data for 2013. Does not include non-OECD countries such as China, Brazil, India and Russia. Includes all forms of taxes: federal, state and local; income taxes, sales taxes, VAT taxes, estate taxes, property taxes, etc.

[18] Source: U.S. Energy Information Agency. Short-Term Energy Outlook, April 2016. Data through March 2016. Includes condensate and natural gas liquids.