Multi-Unit Franchisee Magazine Issue II, 2017 - Page 74

InvestmentInsights BY CAROL M. SCHLEIF The Big Picture Many factors are at play in 2017 T he new presidential administra- tion wasted no time jumping in, even before Inauguration Day. A steady stream of potential cabinet appointees was ushered in and out of Trump Tower in New York City, accompanied by the most intense media scrutiny we can recall for an incoming administration in recent memory. Amidst the headlines and high volume of executive orders, domestic stock markets moved to new highs—and kept right on going. Many corners of the fixed-income markets, however, declined sharply, pushing yields all along the curve upward, presuming the net result of an- ticipated early policy actions would lead to stronger growth, higher inflation, big- ger deficits, a stronger dollar, or some combination of them all. While we suspect the outlines of early initiatives will become clearer in the coming months, we also expect that getting some aspects of campaign promises through a philosophically divided Congress, a cau- tious judiciary, and a skeptical public will be a more arduous process than many ex- pected. Thankfully, it appears that an im- proving set of economic statistics, coupled with high levels of business and consumer confidence, provides a reasonably solid fundamental foundation to underpin the equity market’s post-election advance. On the consumer front, labor statistics are strong as seen in the January DOL report, which showed 227,000 jobs cre- ated (compared with consensus expecta- tions of 180,000 to 190,000); and more people entering the labor force drove the participation rate to above 61%. Wage growth, at 2.6% YOY, continues to run above inflation in that January release. According to several reports, consumer balance sheets remain in better shape, with overall total net worth reaching cycle highs and debt-service ratios declining. On the business front, the housing market appears to remain strong. Ac- cording to the Census Bureau, building permits in January were running at 1.285 million—up 4.6% over December and nearly double the rate at which they bot- 72 MULTI-UNIT FRANCHISEE I SS UE II , 2 01 7 tomed in the wake of the financial crisis. Housing starts were down compared with December, but up more than 10% from January 2016. Anecdotal evidence and a variety of recent news releases point to businesses looking to expand in the U.S. and to ramping up capex and hiring plans. For its part, the government appears to be contemplating a number of different spending programs, including ramping up defense and infrastructure spending, as indicated by the White House’s release of its budget priorities. Irrespective of the fate of infrastructure spend emanat- ing from the national level, a number of voter-led infrastructure initiatives passed in last fall’s elections that will lead to local jobs and spending. The housing market remains strong, and energy prices have rebounded to levels more conducive to steadiness. The University of Michigan Consumer Confidence Index hit an all- time high of 98.5 in January. Further, investor sentiment has turned positive for the first time in nearly a decade, according to various polls by the Ameri- can Association of Individual Investors. Despite the recent upturn, we believe the optimism is not yet at the bubble stage one would expect before an imminen