The US economy continues to show support for better fortunes for many of the companies in the market. The second quarter GDP data will be released soon, and many economists expect GDP will have expanded 4.0% on an annualized basis. Overall expansion for 2018 is expected to be 3.0%.
The economy is supported by a robust US consumer, with the past five months showing continued upward spending in retail sales. Consumer spending is crucial for the market, since it makes up a large part of GDP. Consumer spending also
set ups business spending and investment, and the overall gains in business sales to consumers continue to remain quite robust. Retail trade has climbed from the 2.1% year-over-year rate of growth in July of 2016 up to its current of 6.6%
We’ve also seen US business capital investment increasing at historic rates, with the most recent quarter showing an expansion of 7.2%. For consumers, it’s not just where businesses are today that matters, it’s where they project where they’ll be months down the road. This is where The Federal Reserve Bank of New York’s business leaders survey comes in, gauging businesses expectations for spending not just today, but in the future. Prospects for the economy to experience a ramp-up in business spending looks encouraging going forward.
Bank lending is also increasing, Bank of America reported, that is saw business loans growth for the second quarter rise by 5%. Armed with regulatory reforms and eased capital requirements, Bank of America is demonstrating that businesses are seeking loans to expand their operations.
The same is also being reported by JP Morgan, whose core loans increased in the second quarter by 7%. Now, there are plenty of banks that will be reporting in the weeks to follow: however, I expect to see further evidence of robust demand
for business banking.
All this good news just isn’t doing much for the general stock market. The investment Company Institute that tracks the amount of cash in money market funds, says this figure is just below its recent highs of $2.9 trillion. This amount continues to climb by nearly 9% from lows over the past 12 months. This could be seen as both a positive and a negative for future stock performance. It could be perceived as a negative in that it shows a lack of confidence of investors to deploy more of their cash into stocks. However, as the fundamentals move more into focus, these dollars could move quickly from saving accounts to the stock market pushing prices up.
We anticipate that as the fall approaches and election time begins, the intensity of the tariff negotiations will ease and investors will begin to focus more on the economic fundamentals and quarterly earnings as they roll out. Trade talks may continue to be discussed in some degree and even be implemented. Yet, all involved in the negotiations know that no one wins in a trade war, and it may be difficult to get re-elected if you start one. This being said, we are cautiously optimistic about the second half of 2018 being better than the first half for investors.