The Value Line View, which can be found inside the Selection & Opinion section of the well-known Value Line Investment Survey™, discusses the current business environment, and analyzes the economic and interest rate trends as they can affect the stock market. Since many investors and financial professionals incorporate analyst opinion into their current investment strategies, we’ve made The Value Line View available to you as an added value.
Economic and Stock Market Commentary
The consumer has taken a respite. On point, recent data revealed that retail sales and consumer prices had dipped in March, supporting views that the economy had lost some momentum. In all, retail spending fell 0.2% in March, pressured by falling receipts at car dealers, service stations, and building materials outlets (as poor weather halted work at some construction sites). Meantime, the Consumer Price Index dropped 0.3% in March, the first decline since February 2016.
Still, this slowdown in spending may be more of a pause than a trend. Our cautious optimism reflects the fact that the labor market is near full employment, while wages are rising. Also, retail spending likely was delayed by the last Easter and the slower-than-normal disbursement of tax refunds.
On balance, the economy appears in reasonable shape, with data over the past fortnight showing modest gains in industrial output, factory use, building permits, and the leading indicators. Such durability suggests the economy will gradually strengthen over the course of the year. As such, we would expect the Federal Reserve, which continues to report gains for the economy, to resume raising interest rates by midyear and then stay on a steady monetary tightening course thereafter.
Concerns are greater off shore, as relations with Russia are deteriorating; the odds of a military showdown with North Korea rising; and the possibility of further actions across the Middle East is increasing. The recently higher military profile assumed by our nation could keep international events on the front burner for some time.
Earnings season is in high gear, and so far the results are decent. But there also have been high-profile misses, and these have shaken investors. In all, with P/E ratios high, tensions continuing to build around the globe, and crosscurrents evolving on the economic stage, a further solid earnings performance may be needed to sustain current equity market levels.
Meanwhile, the bears flexed their muscles in mid-April, as stocks dipped below some technical support levels, largely on those stiffer international headwinds and the selective corporate profit misses.
Conclusion: We believe that care and selectivity remain prudent investment strategies at this time. Please refer to the inside back cover o Selection & Opinion for our statistically-based Asset Allocation Mode’s current reading.