Economic and Stock Market Commentary for the week of October 24, 2017

The consumer is back in the game, after a spring and early summer that saw the public exercise a considerable degree of restraint. In September, though, Americans flocked to the nation’s car dealers, clothing and accessories stores, furniture outlets, purveyors of food, beverage, and health care products, and the Internet. The result was a welcome recovery, as retail spending surged 1.6%, overall, last month, even as a trio of hurricanes exacted a deadly toll on a number of populous communities. In all, this was the best retail showing of the year.

Such aggressive spending should augur well for the current quarter, assuming that the latest month’s performance was not an aberration. In fact, with the help of modest comebacks in industrial production and factory usage, projected strength in homebuilding, and likely hurricane-related rebuilding efforts (particularly in housing), the U.S. gross domestic product could well advance by upwards of 3% in the October-through-December period.

We also are expecting good things next year, but there are some questions. To wit, following what should be a solid close this year, a likely continuation of hurricane related rebuilding and further strides in other consumer and industrial markets, GDP growth should remain in the area of 3% through early 2018. Thereafter, help may be needed from business-friendly policies—notably tax reform and further infrastructure efforts—to sustain that level of activity for all of next year, as the up cycle—already extended—ages further.

Earnings are coming through, as well, as Corporate America continues to post solid quarterly results. Indeed, many companies are exceeding the modest expectations for the third quarter.

Meanwhile, the stock market is on course to fashion a wire-to-wire win in 2017, with the key indexes pressing ahead by double-digit percentages, on a cumulative basis, so far this year. That is a most impressive performance given the prolonged nature of the bull market and the likelihood that the Federal Reserve—given the healthy economic backdrop—will resume raising interest rates by yearend.

Conclusion: We believe that a careful and selective approach to equity accumulation is the best course for a market in which P/E multiples remain elevated.

Source: Valueline.com