Mark Levy’s Economic Update – Tuesday, October 8, 2013

 

The stock market is trending lower today due to investors’ concerns of the recent government shutdown and the looming deadline of October 17, 2013 as the date the U.S. debt limit must be raised by. If an agreement isn’t reached by then, there is concern the United States may default on its debt obligations – an unthinkable occurrence! This isn’t a process any of us enjoy, but I would like to point out that as messy as this may seem, it is still our democracy at work. As one of my long time clients has said to me many times; “Democracy, what a horrible form of government, it’s just too bad that no one has thought of a government system that is a better one”! I believe this statement to be true and that ultimately, an agreement will be reached, but it could be a bit of a rocky ride until this ends. There is some good news to report. United States oil and gas extraction is at an all-time high. Consider also the effort by auto manufacturers to produce fuel efficient/hybrid/electric vehicles and it is no surprise to see price stability at the gas pump. Another positive sign is the new trading highs for the Dow Jones Transportation Index. This Index, long considered a good indicator of the upcoming stock market environment, is looking outstanding! To remind you, we feel very positive in general about the equity markets for the next few years. When declines occur, we generally these days view them as opportunities to buy. Why do we feel this way? Well, analysts are projecting the S&P 500 in 2014 to produce earnings of $112.94, which is up 11.3% from this year. They also project another 10.1% increase in 2015 to $135.40. For the faster growth mid-size companies in the S&P 400 they are expecting an increase of 15.4% for 2014 and a gain of 12.6% in 2015. Consider also that many American corporations are in good financial condition – at the end of the second quarter, corporate cash was at a record high of $1.8 trillion dollars! Corporate liquid assets are running at 47% of their short-term debt and a record low of 20% of their total debt. These numbers are a good recipe for healthy equity markets. So, we sincerely hope that the government finds a path to compromise and allows our economy to move forward. I encourage investors to recognize we will see this through even though the ride can be rough at times. As always, if you have any investment questions, do not hesitate to contact us. – Mark   The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. * Stock investing involves risk including loss of principal. Economic forcasts set forth in this presentation may not develop as predicted. Past performance is no guarantee of future results. Don Hays Investment Newsletter dated 10/7/13, LPL Financial Economic Commentary and LPL Financial Weekly Commentary, both dated 10/7/13.