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Post Date: Tuesday, July 17, 2018 |
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As we again survey our recession dashboard, we find that the fundamentals of this economy appear strong. While there are risks which could slow the growth momentum—most notably the brewing trade war—our view is that this expansion will continue for awhile longer.
Looking first at the health of businesses, we highlight here the delinquency rate on commercial loans. This chart compares the delinquency rate from last year to this year for companies which borrow money from banks. Typically, before a recession, companies begin to have trouble making payments, and this figure rises. As you can see, the number of companies having trouble making payments has declined substantially—a positive signal.
Also critical to economic growth is the US consumer, measured by Consumer Sentiment. Usually consumers tend to slow their purchases as confidence in the future wanes. As the chart above shows, consumer sentiment is very high. This is a positive indication of future growth as we would expect this confidence to drive spending.
Not every data point is so rosy. Much has been made about lofty stock valuations. The Cyclically-Adjusted P/E Ratio, or CAPE ratio for short, indicates that stocks are indeed expensive in historical terms. In fact, with a current value over 30, stocks have only been more expensive 10% of the time.
The trouble with measures of valuation (like the CAPE ratio) is that they are not very useful for predicting a downturn. For example, stocks were in the same valuation range from 1995 to 2001, only retreating into more “normal” territory after the recession in 2001. In other words, stocks can stay expensive for long periods of time.
Only a few of the many indicators we follow are presented here. As always, we welcome a conversation about how our view affects you and your long-term goals. Just click the "contact us" button at the top right of the page.
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All information provided herein is for informational purposes only and should not be relied upon to make an investment decision. This presentation is neither an offer to sell, nor a solicitation of any offer to buy any securities, investment products, or in-vestment advisory service. The presentation is being furnished on a confidential basis to the recipient.
The information herein contains forward looking statements and projections representing the current assumptions and beliefs based on information available to Bright Wealth Management, LLC at time of publishing. This information included is believed to be reasonable, reliable and accurate, (however no representation is made with respect to the accuracy and complete-ness of such data) and is the most recent information available (unless otherwise noted). However, all the information herein, and such beliefs, statements and assumptions are subject to change without notice. All statements made involve risk, uncertainties and are assumptions. Investors may not put undue reliance on any of these statements. There is no guarantee that the market will move in any direction, as there is no way to predict with certainty future market behavior. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make an informed investment decision based on individual objectives and suitability.
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