Week of February 6th, 2017: The Dow at 20,000, is the glass half empty or half full?
We all know from experience and observation that no one rings the bell at the top or the bottom of a market cycle. We do not even get a little shake of the bell in the middle.
Living in the cradle of uncertainty, the current economic and business climate, we believe, point to a brighter future instead of impending doom. What makes us think that the recent breakout in domestic equities is sustainable?
Picture of a flywheel*: Think of our economy as a flywheel; a very large and heavy one. As the recession accelerated in 2008 in order to get the flywheel to rotate in the right direction, it took many little pushes consistently delivered in increasing doses. Do you remember TARP, Lower interest rates, QEI and QEII? that got it going in the right direction.
In late, 2009 The flywheel began to spool up as employment grew, as wages began to improve, as consumer spending began to increase, as manufacturing caught on, and energy prices fell, further fueling the recovery – increasing yet again the rotation of the flywheel.
Starting in 2015 the recovery began to reach “Main Street.” Globally, most economies recovered adding revenue to American companies. Profits have rebounded for American companies after five quarters of declines. Inflation has started to pick-up. The federal reserve has normalized interest rates, they are no longer negative, and finally, the new administration is business-friendly reflected in the notions of reduced regulations and taxation.
That flywheel is starting to spin-up now, accelerating, adding energy. The DOW at 20,000? I bet you it will not take as long to get to 30,000. The glass is definitely half full.
Our portfolios strategies generally reflect overweighed exposure to Domestic Equities.
Carlos Dominguez, CFP® – Portfolio Manager
*Sources – https://www.explainthatstuff.com/flywheels.html:
“A flywheel is essentially a very heavy wheel that takes a lot of force to spin around. It might be a large-diameter wheel with spokes and a very heavy metal rim, … Either way, it’s the kind of wheel you have to push really hard to set it spinning. Just as a flywheel needs lots of force to start it off, so it needs a lot of force to make it stop. As a result, when it’s spinning at high speed, it tends to want to keep on spinning….”
Any opinions are those of Carlos Dominguez and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor recommendation. The information has been obtained from sources considered reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Past performance may not be indicative of future results. The S&P 500 is an unmanaged index of 500 widely held stocks that is considered representative of the U.S. stock
Market. Inclusion of these indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary.