We’ve seen volatility return, and we just rode through the first 10% correction in 2 years.
Economic Growth Still Intact
The current economic expansion has run 8 years and 9 months long. Another year or two and it could end up being the longest economic expansion on record. If the stock market holds up as well, this could be longest stock bull we’ve ever seen.
Fixed investment is going up and consumer sentiment is at a record level. Productivity is starting to turn around, and the savings rate has declined from 6 to 2 percent.
Consumers are feeling more positive about their employment and financial situation, and they’re also bringing down their savings, which translates into more spending.
On top of these positives, we’re also seeing economic stimulus in the form of tax cuts and increased government spending to the tune of $300 billion, which we don’t normally see at the end of a business cycle.
“These kinds of things are all coming into play at the same time,” said Financial Sense’s Jim Puplava. “The end result is all of this argues well for further economic expansion. … However, here’s what you have to keep in mind. This is a late-cycle economic expansion, and it’s going to bring about a change in Fed policy.”
Inflation Set to Rise, Interest Rates Will Follow
Last year was the first year in which the Fed actually raised interest rates three times, and it’s widely anticipated they’ll go three times this year or possibly four if inflation picks up.
“Investors need to understand, the time to be complacent about your investments in the market is over,” Puplava said. “The Fed is reacting differently when there’s slack in the economy, and that slack has been exhausted. They act differently when inflation is rising closer to their target.”
In general, it’s important to understand that the Fed is out of the business of smoothing over equity markets with stimulus.
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