Money Advice

Economy continues to be strong despite stock turbulence

Posted by The Simply Money Advisors Team on Feb 12, 2018 2:56:03 PM

Stocks hit a rough patch over the past couple of weeks, but fortunately, the fundamental economic picture remains strong.

Sparking this bout of uncertainty was the fear that inflation would force the Federal Reserve (Fed), our nation's central bank, to raise short-term interest rates quicker than Wall Street traders are expecting.

This led to large-company stocks briefly slipping into correction territory (a drop of 10%) last week. Stocks have since recovered somewhat from that decline, and it's possible we've seen the bottom. But Simply Money Advisors would not be surprised by a “retest” of those lows before stock prices head higher over the next year.

The reason we are optimistic on stocks, in the long run, is that the U.S. economy is growing with little risk of a recession. Historically, the largest stock market declines occurred when there was a risk of a recession. 

Simply Money Advisors expects the U.S. economy to grow around 2.5% in 2018. This economic growth, combined with tax reform, should result in corporate profits growing around 15% on average in 2018.

Currently, companies are reporting profits for the final quarter of 2017, and the results are strong. About 81% of large companies have reported better-than-expected profits, with year-over-year profit growth of nearly 16% on average.

The economy and corporate profits are the main driver of the stock market over the longer run. This week's economic calendar is packed with information that should give us an idea of how the economy is doing to start the year: inflation, retail sales, manufacturing, housing, and consumer sentiment.

Wall Street traders will be watching the inflation number closely for signs that prices are rising in the broad economy. The concern is that “core” inflation closes in on 2% and that forces the Fed to raise short-term interest rates more than three times in 2018.

The Simply Money Point 

Simply Money Advisors believes the economy is still looking good, and that the Fed will raise short-term interest rates two or three times this year. If you have any debt that carries a variable interest rate, now is a good time to focus on paying off that debt.

Topics: Investing, Economy

Disclaimer

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Simply Money Advisors), or any non-investment related content, made reference to directly or indirectly will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, this content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained here serves as the receipt of, or as a substitute for, personalized investment advice from Simply Money Advisors. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Simply Money Advisors is neither a law firm, a certified public accounting firm, nor a tax advisory firm and no portion of the blog content should be construed as legal, accounting, or tax advice. Please consult your own attorney, accountant, and tax advisor for legal, accounting, and tax advice. A copy of the Simply Money Advisors’ current written disclosure statement discussing our advisory services and fees is available for review upon request. Advisory services offered through Simply Money Advisors, a SEC registered investment adviser. Insurance services are offered through Simply Money Insurance Agency, a separate entity from Simply Money Advisors. Simply Money™ and the spiral symbol are trademarks of Simply Money IP Holdings, LLC.

Simply Money Advisors

Your trusted financial planning partner helping to protect your money and make it grow.

Subscribe to Blog Updates

Recent Posts