Economic Insights - July 2018

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History tells us that, over the long-term, the economy grows, and stocks rise.  Therefore, optimism as a default setting is the only way to successfully fund a retirement over the long stretch. Beyond that, you need to avoid emotion when it comes to assigning probabilities to any price changes that might occur.

Since late January the S&P 500 index has been going side-ways.  Every time is approaches its all-time high, it inevitably backs off.  We are not surprised.  Since mid-January, McClellan’s indicators have predicted a “substantial correction,” in the summer of 2018.  In response, the Business Briefingseditors raised our cash position to 30 percent, with plans to reduce it back to 5 percent, around September 1.

Maintaining 70 percent in equities reflects our continued optimism about the broader economy.  Meanwhile, the 30 percent cash position prepares us to buy at lower prices if the forecast correction materializes.  As we explain later in this segment, fundamentals are strong, the secular bull market remains intact, and cyclical trends remain upward.  Any correction that occurs this summer should be seen as a “buying opportunity” caused by technicalfactors.

Consider the underlying economic cycle.

An important rule to keep in mind is that “when everyone is looking for a recession, it highly unlikely to happen.  When things look rosy and no one is worried that excesses are building, that is when the next downturn is right around the corner.”  Today, everyone is looking for a recession, even though almost every indicator says the opposite.

For instance, truck tonnage is a great leading indicator for recessions.  Yet, we’ve just recorded a new high in truck tonnage – up 8 percent Year-To-Date through April.  This represents yet another indicator that no recession is looming.

The Conference Board’s Leading Economic indicatorremains positive increasing to 109.5, a bit lower than economists anticipated.

Source: Bespoke

U.S. household net worth rose at a 4.2 percent rate in the first quarter of 2018 to a record-high of $100.8 trillion!  According to the Fed’s Z.1 report, that’s up from the prior record-high of $99.7 trillion set in the fourth quarter.  Asset...

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