Why the Bull Market Could Pause in 2017
The market since the US election
The market has shown strong movement since the US elections in November 2016. The bulls have entered the market (VFINX) (IWM) (VOO) and driven market sentiment. The following macroeconomic indicators have also supported this rally:
- The US consumer sentiment index and the consumer confidence index have shown gradual improvement from December 2016 to March 2017.
- The US labor market had stronger figures in January and February 2017.
- The US inflation index has shown a gradual improvement since November 2016.
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However, Bill Gross is very concerned about economic growth. His concern is that slower economic growth could hamper the performance of the equity market. In his March investment outlook, Gross warned that 3.0%–4.0% economic growth seems steep.
What’s affecting the bull market?
Economic data showed weaker figures in March 2017. Retail sales fell 0.20% that month. Auto sales, which is a leading indicator of the economy, also fell.
Recently, billionaire investor Larry Fink said that confidence in the US economy (SPX-INDEX) (SPY) (QQQ) hasn’t translated to sales. If retail sales and auto sales show stronger growth, investor confidence will increase. That could be an important market driver. Fink also believes that the United States could have the slowest first-quarter growth among G7 (Group of 7) nations1 for the above reason. Some Fed officials also projected slower economic growth in the first quarter.
The labor market also had a poor performance in March 2017. The inflation index, which is an important index for economic growth, also performed poorly. These factors are raising concerns about economic growth and could cause the bull market to pause, which we’ve seen since the US elections.
- United States, United Kingdom, Germany, Canada, France, Italy, and Japan ↩