We last wrote that the economy seems to be on a stable and moderate growth path. This remains the case despite the recent volatility in the markets caused by political pronouncements of fairly extreme upcoming policies. In the past I have repeatedly said that “politics” generally have little effect on the economy because the economy is vast and relatively immovable in the short term. Policy changes have a greater impact on the markets which tend to be very excitable. But, ill advised political policies tend to be self correcting over time as they morph into beneficial actions that positively affect the economy based on economics and real time feedback as the economy responds.
Having said that, the markets have been very volatile in reacting to the President’s policy announcements regarding trade and his envisaged role of government. His relatively extreme initial views have been modified and normalized due in part to reactions and feedback from the markets, his constituency and when the Courts curtailed some of his plans based on various legalities. It is not always bad to shake things up as long as one can gravitate towards positive reforms.
The economy is responding positively to the Fed’s slow and deliberate approach to bringing our already low inflation closer to its two percent target. Unemployment has risen somewhat to 4.2%. It is above, but still remains very close to historically low levels. The ongoing strong consumer demand has also been slowing in response to policy announcements, but given the strong employment situation, it is unlikely that consumer demand will soften much further and may even rebound.
Our outlook remains that the market will trend upward in a normal choppy pattern throughout the year. Even though the economy continues to slow to further contain inflation, the possible/expected downturn that can follow an interest rate cycle still has not materialized, but, as always, there are many unforeseeable risks which can easily alter the outlook. We remain cautious and vigilant. Please remember that because these quarterly thumbnail sketches are very brief, do not hesitate to call me if you wish to discuss your account or our outlook in greater detail.
Very Best Regards,
Affiliated Investment Advisors 