Should stock market investors expect another miserable end of the year?
- Strong consumer confidence in the US and monetary policy easing by central banks bodes well for stock market performance next year
- However, economic and political uncertainty, budget deficits and corporate debt remain risks to watch
Markets still have room to go higher, but clouds are gathering. Last year’s scars remain fresh for many investors as they navigate towards the end of the year.
In fact, the outlook for next month – and next year – remains good thanks to consumers, central banks and valuations. There is a longer list of risks looming in the distance, however, that bears close attention.
Consider the promising news first. The continued strength of US household demand remains nothing short of remarkable. Unemployment is at 50-year lows, wages are still growing and retail sales continue to post strong results, in spite of noise in the most recent data: unemployment at 3.5 per cent, average hourly earnings growing 2.9 per cent year on year and retail sales growing 4.1 per cent over the same period.
Unlike the last crisis, this demand seems much more durable, since savings are high (near 8.1 per cent) and debt service as a percentage of household income looks eminently affordable, near 9 per cent and down from 13 per cent before the crisis.