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Kiplinger’s Midyear Investing Outlook

By Anne Kates Smith
Kiplinger’s Personal Finance

Investors today can benefit from a rare period of sustained, synchronized economic expansion across the globe. “Growth is picking up in the U.S., Europe and in Asia, the first time we’ve seen all three major global regions rising at the same time,” says Richard Turnill, global chief investment strategist at Black Rock Investment Institute, the investment firm’s research arm.

In the U.S., a pro-business agenda in Washington that calls for lower corporate tax rates and less regulation has lifted animal spirits. Business spending on workspaces and equipment, missing for much of the economic recovery, is sure to follow, says Tobias Levkovich, chief U.S. stock strategist for Citigroup. Lack of spending in the beleaguered energy sector has been the biggest drag, but exploration and production companies expect to spend 40 percent more this year than last year, Levkovich says.

Consumer confidence measures are also the highest since the early 2000s, which bodes well because consumer spending accounts for roughly 70 percent of the U.S. economy. At 4.4 percent, the unemployment rate is at the lowest level since May 2007, and wages are ticking higher.

The current U.S. expansion, which began in June 2009, has been much longer than usual. That’s because it has been punctuated by “rolling recessions” that roil industries one at a time instead of plunging the overall economy into a downturn, says economist Ed Yardeni, of Yardeni Research. Recently, the recession has rolled into brick-and-mortar retailers, as department stores struggle against incursions from online merchants and warehouse clubs. Yet the overall economy remains buoyant: Kiplinger expects gross domestic product to increase by 2.1 percent in 2017, up from growth of 1.6 percent in 2016.

Central bank policies, here and abroad, remain supportive of economic growth. In the U.S., the Federal Reserve is raising rates, but oh-so-gradually. Look for the Fed to hike its key short-term interest rate two more times this year, bringing the total increase for the year to three-fourths of a percentage point. The yield on the benchmark 10-year Treasury bond will end the year at 2.7 percent, up from the current yield of 2.3 percent and still providing little competition for stocks.

Corporate earnings – an important determinant of share prices – are having a growth spurt. First-quarter profits for S&P 500 companies increased by nearly 15 percent from the same period in 2016. For all of 2017, Wall Street analysts predict earnings growth of more than 11 percent, a big improvement from 2016. Look for the biggest earnings gains in the energy, materials, financial and tech sectors, according to a survey of analysts’ estimates from Thomson Reuters. Editor’s Note: Anne Kates Smith is a senior editor at Kiplinger’s Personal Finance magazine, www.Kiplinger.com.


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