ECONOMIC AND STOCK MARKET COMMENTARY

The employment picture remains reasonably bright. True, job growth is slowing, as one might expect given the length of the business up cycle, with employment up by 2.2 million in 2016, more than half a million below the comparable 2015 gain. Still, the ongoing strength on the jobs front has helped to push the jobless rate below 5%, while lifting average hourly wages by nearly 3% in the past year. Meantime, the brighter outlook likely gives the Federal Reserve room to raise interest rates two to three times in 2017.

Other key sectors are advancing as well, thereby underscoring the fact that the economy is on fundamentally solid ground as a new Administration takes over. On point, manufacturing, non-manufacturing, corporate profits, and consumer confidence are all at or near multiyear highs, attesting to the staying power of the business upturn, at least in the months ahead. So …

We likely are looking at a fairly good economy in 2017. Following a possible gross domestic product gain of 2%, or so, in the recently ended quarter, our sense is that growth will edge above 2% in the first half of the new year and climb at a slightly faster pace during the second six months, assuming President Trump’s tax and spending plans pass in Congress.

Thereafter, the outlook becomes less certain, in large part because of questions regarding the timing and eventual impact of the fiscal stimulus measures likely to be proposed by the new President. Also, the Fed will probably continue to tighten monetary policy over the next few years and that could raise sustainability issues as far as the expansion is concerned. For now, we think growth will average just over 2.5% through decade’s end.

Prospects are rarely well defined globally, and the coming years will likely continue this uncertain pattern, especially if tensions escalate with Russia and China with regard to trade, political, or military matters. Meanwhile …

A pricey stock market is starting out 2017 in uncertain fashion, as concerns persist about profit taking, fiscal and monetary adjustments, and fourth-quarter earnings. So far, stocks are holding up well, but the path to still higher levels is ill defined.

Conclusion: Going forward, the test will be if the news is positive enough to boost current valuations.

Source: Valueline.com