Lastly, taking our analysis to ground level, "Doctor Copper" (so named for its economic predictive powers) has rallied 20% in the last 6 months. In sum, businesses certainly anticipate a brighter future thanks to tax reform, but their optimism also stems from the solid synchronized growth registering in the hard data worldwide.
Bottom Line: Janet Yellen leaves the Fed with a stellar performance record. While underlying trends moved in her favor, she had the prescience not to disrupt them. Really good Fed chairmen don’t “manage” the economy, they stay out of the way until absolutely necessary. Janet maintained this posture to our benefit throughout her tenure, and we expect her successor Jay Powell to do the same. Fortunately for Jay, he assumes the chairmanship at a time when global economic conditions are uniformly positive. Tax reform in the US adds an historic late-cycle stimulus that could press optimism and activity to unsustainable levels. We will look toward debt and inflation indicators to monitor over exuberance. But for now…..in the words of Janet Yellen…..
“At the moment the U.S. economy is performing well. The growth that we're seeing, it's not based on, for example, an unsustainable, build-up of debt as we had in the run-up to the financial crisis. The global economy is doing well. We're in a synchronized expansion. This is the first time in many years that we've seen this. Inflation around the world is generally low. So I think the risks are balanced, and there's less to lose sleep about now than has been true for quite some time, so I feel good about the economic outlook.”
Have a Great Weekend!
David S. Waddell
CEO, Chief Investment Strategist
Sources: Federal Reserve, NFIB, US Funds, Bloomberg