In last week’s post, I took a look back at 2014. While many Americans were worried that the economy and the markets were in terrible shape, things were actually … pretty darn good. Economic activity was strong, unemployment declined, the US markets were up, and we made some significant progress on social justice and environmental sustainability fronts as well. That’s great, of course. But what about the near future? What about 2015? First, before I say anything at all about the year ahead, I need to make a big disclaimer: We can’t know the future with any certainty. It’s claimed that the great American philosopher Yogi Berra once said “It’s tough to make predictions, especially about the future”. Short-term predictions about the economy or the markets can easily be overcome by unexpected events; apparent trends that might drive medium-term predictions can fizzle out for no apparent reason. And, of course, all of our portfolio recommendations are made on the basis of our clients’ personal financial goals and long-term expectations lased on similarly long-term historical results — never on short- or medium-term trends. All that said, lots of us are still interested to hear what the “experts” have to tell us about the coming year. Economic Factors: There are only a few economists whose views about the immediate future I take seriously — mostly because they are clear that they really don’t take themselves entirely seriously. But they agree in pointing to five key economic factors, each of which is positive to neutral for the coming year.
- The Chicago Federal Reserve Bank’s “National Activity Index” has been showing above-average growth recently, and shows no sign of slowing.
- The Conference Board’s “Leading Economic Index” has been showing increased economic activity, and shows no sign of slowing.
- Oil prices are low right now, especially compared to recent high prices.
- The difference in yield between “junk” and “investment grade” bonds, known as the “junk spread”, has been falling, except with respect to oil and gas companies.
- The fifth indicator, the shape of the US Treasury Bond “yield curve”, hasn’t changed much at all recently, which is a neutral indicator.