A year ago, on this podcast, we were discussing how the upcoming 2016 presidential election might affect the economy. Then, at the beginning of 2017, my clients and listeners wanted to know if the surprising “Trump rally” was for real, and how the new administration’s plans might affect taxes and popular retirement-planning tools. Now, my clients are asking: “Has the ‘Trump rally’ peaked? Is there something I can do to take advantage? Do I need to prepare my investments for a big correction?”
World events and politics make some investors jumpy. But through all the tumult of the past year, our message at Keen Wealth has been consistent: stay the course. Keep your feelings about any particular president or news story out of your financial planning. In the long run, the financial markets continue to trend upwards, independent of any one person – even the president.
But that doesn’t mean there aren’t important things to consider at this point in the market cycle. On today’s show, our wives are in the studio to help us discuss the mid-year outlook for the markets, consumer spending, what surprises might be around the corner, and how to plan accordingly.
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Insights from Today’s Podcast on the 2017 Mid-Year Outlook
When we make our mid-year outlook, we ignore scare tactics in the daily headlines, and risky market-timing trends. Instead, we focus on key economic indicators:
Since the markets bottomed-out in 2009, we’ve had 16.8 million jobs gained in the U.S. We haven’t had a negative quarter of job growth during that recovery. We’re at the lowest level on initial jobless claims since the 1970s. To use some industry jargon, we’d call the job market “tight,” meaning the job market is strong, and there’s a demand for workers. That’s a good thing for the economy, because it means consumers are employed, and consumer spending accounts for a majority of our country’s economic activity.
However, there are still pockets of the economy that are struggling. Rosy high-level economic data doesn’t matter to someone looking for work in the energy sector, or an underemployed recent graduate. But our focus here is the macroeconomic picture, and its impact on our listeners’ retirement planning. From that perspective, low unemployment numbers are a big positive in our mid-year outlook.
2. Retail sales
Consumption is two-thirds of the US economy. So for our mid-year outlook, it’s important to ask, “Are people spending money?”
Yes, they are, especially online, where sales are growing at a rate of over 10% per year. Average consumer credit scores are the highest they’ve been since 2005. There’s also been a double-digit growth rate in spending on pleasure items, like motorcycles and boats, and visits to amusement parks. Usually, these kinds of big-ticket purchases contract before a slowdown, and that’s just not happening.
Again, the macro picture doesn’t always mean good times on Main Street. The online shopping boom continues to hurt brick-and-mortar stores. But as people make more and more of their everyday purchases online, entrepreneurs have found opportunities to open boutiques that offer specialized wares you can’t order from Amazon.
3. Households and housing
The net worth of US households is an important stat that we check every quarter. Right now, it’s at $94 trillion, and assets are at $110 trillion. Two-thirds of household liabilities is housing debt that’s no longer as highly-leveraged as it was eight or nine years ago. Housing prices are at all-time highs, $284,000 per median price. Demand for housing remains strong, and existing houses are selling quickly, usually above their asking prices. People wouldn’t be snapping up real estate like this if they were worried about their jobs and money.
If all that info has you thinking “housing bubble,” consider this: home starts are still below their long-term average; wages are growing; and inflation is under 2%. We don’t see a bubble; we see a real estate market that still has growing to do.
One area of the economy that has been lagging is productivity, which has a strong impact on our standard of living. For the last ten years, productivity has been slow as workers adjust to the new global economy, and our increasingly online lives.
The good news is that more and more companies are working to disrupt the status quo. We’ve seen Uber and the “gig economy” create whole new categories of jobs that aren’t easy to track with traditional productivity stats. Older companies are warming to missions bigger than profit to attract millennial talent. Amazon looks poised to shake up how we buy groceries. The home media revolution is giving consumers more choices than ever for their entertainment dollars. Apple and other tech companies continue to innovate, creating must-have consumer products that enrich our lives, and keep us spending.
All these factors, and the supplemental data we analyze at Keen Wealth, demonstrate to us that the underlying fundamentals of the economy remain relatively strong. That being said, we do expect to experience volatility in the coming months with some new peaks or valleys as investors overreact to the news of the day. But our clients have built nest eggs that they need to make last the rest of their lives. We really can’t afford to make major timing mistakes with those assets. We’re confident that having a financial plan in place, along with a diversified investment portfolio that is rebalanced when needed, is still a solid strategy.
Bill Keen on the 2017 Mid-Year Outlook …
“Through all the tumult of the past year, our message at Keen Wealth has been consistent: stay the course.”
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Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 24 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
Keen Wealth Advisors is a Registered Investment Adviser. Nothing within this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Keen Wealth Advisors manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed here. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.