3rd Quarter 2017
by Bill Hoover on Oct 16, 2017
Steady as she goes.
Euclid and the markets continued to be optimistic through the 3rd quarter. Valuations remain at the upper end of normal, but so far the economy has grown fast enough to justify, and even upgrade, expectations. The most recent GDP report was actually revised up slightly while crucial factors like inflation and job growth continue to be favorable. Some wage growth along with the new jobs would be welcome, but then that might imply stronger inflation.
It remains to be seen how the three recent hurricanes will affect the economy. Euclid has been happy with the ability of the oil and chemical industries to keep the supply chain going under such difficult circumstances. GDP will get a bit of a bump from those affected repairing the damage, but there will also be less positive effects that could raise costs and inflation in some areas.
The technicals of the market seemed to be weakening over the summer – generally a period of lower activity and volume. What was especially worrisome was that while the indices were going up, the advances were not broad based. Since then this has corrected itself with across the board gains in most sectors. As these indicators remain favorable, Euclid will continue constructive on equites
The Fed continues to talk more about withdrawing stimulus than actually doing much. At the current rate it would take over 30 years to shrink their balance sheet to pre-2008 levels. The bonds they are using will have matured long before they can be sold! Still, they have managed to get a start without spooking the markets. The dollar has stopped weakening as the economy stayed strong, so perhaps this is the best of all possible worlds.