Time flies. It may be a cliche, but it certainly applies to 2017 so far! Now that we’ve passed the halfway point of the year, it’s an ideal time to take a look at how the economy and markets are faring following the tumultuous and exciting end to 2016. In general, the first half of this year has brought strong global and U.S. markets. Even with unpredictable international political events and multiple tragedies, markets have remained unusually calm. Let’s look at a snapshot of how various aspects of the economy are faring in 2017 so far.
There is always plenty of interest and concern regarding the markets due to the fact that many of our portfolios are directly impacted by its ups and downs. Here is a summary of how stocks, bonds, and volatility are doing this year.
Looking at the big picture, U.S. stocks finished up 4.5% in the second quarter of this year, resulting in a 9.7% year-to-date increase!1 Though markets are strong overall, different sectors saw vastly different performance. For example, energy stocks have suffered from declining energy prices, OPEC has been unable to stop falling oil prices2, especially after June’s diplomatic crisis in Qatar3, and information technology has performed impressively, though with a pullback at the end of June4.
If you follow the news, you know that there have been several terrorist attacks and unexpected international election results. Surprisingly, global markets are still trending positively despite the unrest. In April, the International Monetary Fund raised its forecast for global growth to 3.5%, which would be the fastest rate of growth in the past 5 years.5
The markets are continuously fluctuating, and these up and down movements can create risk and instability, known as volatility. Throughout this quarter, markets were abnormally calm. By the end of April, there had only been one day in which the S&P 500 dropped more than 1%. For some context, in 1996, when things were particularly volatile, it had happened 17 times during the same time period.6 The markets are not known to be calm, so this could signal a growing complacency among investors. Uncertainty usually creates volatility, so it’s not surprising that June saw a slight increase in volatility due to James Comey’s testimony before Congress. His revelations about Russia’s involvement in the election and Trump’s actions in regards to the investigation stirred the waters and led to a rally among financial stocks and small caps.7
While Europe has not experienced major volatility, there have been pockets of it. In Qatari markets, there was a sharp decline because of a diplomatic crisis, and the UK saw a drop in the British pound due to elections resulting in a hung Parliament.8
Just like stocks, the bond market is seeing continued growth, up 1.84% for the second quarter. Things continued to grow steadily throughout the quarter, without any major volatility. In detail, taxable municipal bonds were up 3.14%9 and US tax-exempt municipal bonds trailed them at 2.26%.10
In the first few months of this year, the U.S. gross domestic product turned in its weakest performance in a year, with a growth rate of only 1.2%.11 But on the bright side, things have begun to improve, with the GDP rising to 2.2% for the year by June. We know that the Federal Reserve is still optimistic about the country’s economic growth since they unveiled another interest rate hike a quarter percent, bringing it to a range of 1%-1.25%, despite declining inflation. They also announced a plan to trim their balance sheet.12
In other areas, housing is doing well and bank loans and mortgage applications have also increased. In contrast, commodity prices and inflation have been dropping.13
Unemployment numbers are usually a good way to gauge the health of the economy. Right now, unemployment is sitting at 4.3% and job openings are at a record high, reaching 6 million by the end of April.14 Unemployment is expected to remain low since job creation has increased. In addition, average hourly earnings have also risen 2.4% since April of last year.15
Following the trend of the other areas of our economy, U.S. earnings grew 11%16 in the first quarter of this year, which is the fastest rate in nearly 6 years! The strong 13.9% year over year growth has been fueled in large part by the energy sector17. As energy continues to drive growth, the estimated earnings rate for the second quarter is 6.6%.18
What Does This Mean For You?
After reading through all those numbers, you may be wondering, “what does this mean for my finances?” Your takeaway is that the economy is continuing to grow steadily, though not quickly. As the bull market carries on, it is important to make sure you have a broadly diversified portfolio that takes into account your own personal financial goals, risk tolerance, and tax profile. Whenever there is a slowdown in growth, it is crucial to resist chasing performance and maintain your long-term investment strategy.
At ATL Global Advisors, our goal is to help you be proactive, not reactive. We want to work with you to develop solutions to protect your wealth and prepare for unknown market risks. If you would like a second look at your portfolio or feel that you need to update your financial plan, email me at email@example.com or call 770-800-2851.
Kevin Myers is a financial advisor and managing partner at ATL Global Advisors, an independent financial services firm serving transportation and logistics employees in the greater Atlanta area. With more than two decades of industry experience, he specializes in providing private wealth management services to business owners and their families, with the goal of helping them realize their financial dreams. Learn more by connecting with Kevin on LinkedIn.