Economic and Stock Market Commentary for the week of September 19, 2017

The nation will soon enter the homestretch of 2017 facing some unexpected headwinds. To wit, the economy, which stumbled out of the gate during the seasonally slow first quarter, before perking up in the second three months (when the U.S. gross domestic product increased by a solid 3.0%), had appeared headed for a similarly healthy rate of growth in the July-to-September period. However, that orderly progression was disrupted by the arrival of back-to-back devastating hurricanes. In all, the deadly storms will hurt near-term growth by damaging infrastructure and disrupting businesses (especially in the energy and chemicals areas). Eventually, much of this cost will be offset by reconstruction efforts. In the meantime, growth in the third quarter, which we had expected to hold near 3%, may wind up closer to 2%.

Things should start getting back to normal as we approach 2018, and the reconstruction efforts kick fully into gear. Even then, the recurring pattern of uneven growth is likely to continue, with recent increases in productivity and continued low levels of weekly jobless claims likely being countered by declining exports, a flattening oil rig count, and uncomfortably low inflation. All of this is indicative of the unassuming nature of this long upturn.

The 2018 promise is still intact. By that time, much of the hurricane-related rebuilding should be well under way and contributing nicely to GDP as, perhaps, should tax reform and other, non-hurricane-related, infrastructure programs. Such possible economic measures could potentially help lift GDP improvement past 3% for one or two quarters.

Meantime, some potentially complicating issues are in play. In addition to the uncertain weather, there is the continuing political dysfunction in Washington and the still-unresolved standoff with North Korea to periodically grab the attention of investors.

All the while, the bulls continue to fend off the bears, with the domestic and global fundamentals apparently still sufficiently reassuring to limit the selling on down days and to restore buyer confidence shortly thereafter.

Conclusion: The bull market will end at some point. For now, though, with the backdrop still generally positive, that inevitability is seemingly not yet at hand.

Source: Valueline.com