October 23, 2017(904) 346-3460info@riverplacecapital.com

13Q3 Forecast

Economy

The U.S. economic growth pace should accelerate in the second half of this year.  It should be boosted by increasing home sales and continued recovery in housing values.  Our economy also benefits from domestic energy sources supplying a greater share of our needs.  An abundance of natural gas is giving our manufacturing and chemical industries significant cost advantages over foreign competitors.  Manufacturing is making a good come-back in the U.S.

Auto sales continue to recover and are now tracking at a healthy rate.  American businesses are very profitable and are beginning to reinvest in their own businesses at an increasing rate.  All of these factors should lead to improved growth rates.  Our forecast is for the U.S. economy to grow near 3% or higher over the second half of 2013.  Next year might be even higher.

Equities

So now we have had a correction.  It was obvious that the stock market could not continue to advance at the rate it had during the first part of this year.  The correction catalyst was worry about higher interest rates.  That correction looks to be mostly over.  However, it may take some time before a sustained uptrend once again emerges.  Confidence will need to be rebuilt.

Stocks eventually will go higher, because their earnings will continue to advance, valuations are still cheap, and even though interest rates may increase, they are much lower than historic returns available from stocks.  Because of these factors, Riverplace Capital still believes that stocks will add to their returns this year.

Fixed Income

The increasing interest rates shoe finally dropped.  Rates have been creeping higher for some time, but after the Fed Chairman laid out a possible path for normalization, they absolutely took off.  Interest rates on the Treasury 10 year benchmark bond jumped from about 2% to 2.6% in a few days.  This adjustment was so quick that it scared people.

As a result of the rate increases, most bond indices are now showing negative year-to-date returns.  This will be alarming to more and more bond investors.  No one can predict the trajectory of further interest rate rises, but it is clear the lows have been seen and higher rates are coming.

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