By: Dividend Sensei
Click here to read up on the intro to this portfolio, the theory behind it, and its methodology.
Due to time constraints I’m forced to update the DVDGI on a monthly basis. But rest assured that I’ve been maintaining it and its system, per the strategy rules, the entire time.
Monthly Economic/Market/Earnings Data Review
The S&P 500 is once more at an all time high, up 12.53% YTD, based on a mix of positive economic news this year, increased business and consumer confidence, and of course, the hope of tax cuts.
The GOP’s tax reform agenda framework is now out, and it’s highly favorable to Wall Street, with corporate taxes dropping to 20% (from 35%), a repatriation holiday, and a potential shift to a territorial tax code that will allow US companies operating overseas to repatriate cash in the future without massive tax bills.
Further good news is that Q2 GDP grew at 3.1%, while productivity is rising (up 1.5% since last year), and core inflation (by the Fed’s favorite metric) is down to 1.4% and falling.
Meanwhile wage growth is steady at 2.5%, and the labor market continues to be strong, promising a potential increase to that important rate in the future.
That being said, it’s not yet time to break out the party hats, because economic growth in the 3rd and 4th quarter is expected to be much weaker, and prevent 2017’s full year GDP growth from finally cracking 3% for the first time in a decade.
Atlanta GDP NowCast: 2.3%
New York Fed NowCast: Q3 1.5% growth Q4 1.9% growth
So it appears we are still mired in our lackluster 2% growth rate, at least for now. Fortunately the slow rate of growth shows no indications of coming to a stop anytime soon, and recession risk remains highly muted (short-term risk of 2.0%).
Now it’s important to note that long-term interest rates are gradually rising once again, largely thanks to the Fed’s proceeding with its planned roll off of its balance sheet.
Of course that will start slow ($10 billion a month) and even in a year’s time when it it ramps up to $50 billion a month, it will still take until 2022 to 2023 before the balance sheet drops to the Fed’s stated goal of $2 to $2.5 trillion.