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