Stock Market Insights: Surprising strength - U.S. economy impresses

DR. RICHARD BAKER, AIF®, is the founder of and an executive wealth advisor at Fervent Wealth Management. https://www. facebook.com/Dr.RichardBaker

I was shocked they had mashed potatoes. A couple of my mentors and I were doing some teaching in a remote village in the Amazon rainforest. The locals told us that an American was running a café in town; to our great surprise, it had great food. The current strong economy might be an even bigger surprise.

Weren’t we supposed to be in a recession about now? The biggest surprise to market watchers is just how much better the U.S. economy is doing than everyone expected. The economy is impressing with its strength in household goods and services, continued job market, and strong corporate profits. Almost nobody saw this coming.

Early this year, most analysts and even the Federal Reserve forecasted that the U.S. economy would struggle because of higher interest rates. But the economy didn’t get the memo because it’s speeding up even though loans are more expensive, the restarting of student loan payments, and, of course, that pesky war in Ukraine and now the Middle East.

Those same market analysts who had predicted a recession this year are raising their growth forecasts.

It’s no surprise that stocks are currently down some with the treasury yields rising so quickly. Investors who have been told how terrible everything should be are trying to figure out this new higher-rate market environment.

The U.S. Gross Domestic Product is about to hit 4% (maybe even 5%), the Composite Purchasing Managers Index has crossed over to a growth projection, and retail sales remain strong. All this to say, we may not have a “soft landing,” but it’s looking more and more like we will have a good economic landing.

Yet, investors continue to feel uncertain, and for a good reason. We are still seeing the delayed effects of the Fed’s rate hikes, there are wars and rumors of wars, and the U.S. government is spending money like your drunk uncle, driving up higher federal debt. All of which has led to recent market volatility.

The majority of analysts believe the economy will continue to be stable even with stubborn inflation sticking around. There is, of course, a vocal minority (a lot of unlicensed talk radio folks) preaching that inflation will crash the economy, but I disagree with them. I feel good about the market, though I think it will continue to be volatile. Investing used to be more of a “set it and forget it,” but with so many quickly changing dynamics, the importance of active investment management has never been greater.

If you ever find yourself in the Amazon rainforest town of Iquitos, Peru, I highly recommend the Yellow Rose of Texas restaurant. Do I wonder why a talented Texan is hiding out in the middle of nowhere jungle? Yes, I do, but you will have the best mashed potatoes in your life. We ate there every night and started having the mashed potatoes as an appetizer. They were a pleasant surprise, just like the current economy.

Have a blessed week!

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