Present: Where we are
Welcome back. In this installment, we’ll take a look at what is happening in the economy now. The current state of financial markets can best be highlighted by the following: rising domestic stock markets and higher home prices are creating a wealth effect, consumers are gaining confidence despite structural economic issues; corporations have lowered expectations, geo-political tensions are bubbling, domestic stocks are trading near all time highs, and international stocks and many other asset glasses have fallen far short of the success of the U.S. Stock Market.
As important assets such as stocks and home prices continue to increase in value, U.S. households are beginning to feel more wealthy. U.S. household net worth has reached a new record high and was up nearly 10% from this time last year. Considering the U.S. consumer accounts for over 70% of domestic economic activity, better economic growth may in store. Along with better home sales, auto sales have also bounced back considerably. The charts on the screen show solid growth in sales from each major auto manufacturer. Despite the spending increases, corporate earning are increasing at a lack luster pace, well off higher levels earlier in the recovery and steadily declining throughout the second quarter. The chart shows earnings per share of the S&P 500 increased by six percent in the first quarter of this year. This is only after .4% growth in all of 2012. Consensus expectations call for earnings to accelerate for the remainder of the year and maintain a healthy pace in 2014. Considering the trend along with decelerating domestic and international economic growth, expectations may prove a bit optimistic.
A wild card in the financial markets is geo-political tensions. It was announced recently the White House intends to arm Syrian rebels, who are in the midst of a civil war. Apparently, the present of Syria has used chemical weapons, which is a red line that President Obama established as a deal breaker for getting involved. Russia isn’t happy with the U.S. support for Syrian rebels, who have questionable affiliations and motives. To top it off, the ex-CIA employee that went rogue, has been granted asylum by the Russians.
Now that we’ve discussed the past and present, our next video will explore what we might expect in the future.