As you know, we try to avoid politics except where it impacts on the economy and markets. This is one of those times. Markets have certainly been unnerved by the craziness surrounding the recent elections. The volatility has been higher than we like to see, and we have chosen to lighten up on our equities while we look for more direction from Mr. Market.

So, without trying to find the whys of the recent market ups and downs (and we believe that no one ever really knows) let’s take a 30,000 view of our situation. According to Jerome Powel (Fed Chair) in his comments yesterday, we are in one of the strongest economic environments we have seen in many years. I will postulate that there are three main reasons WHY the economic environment is so strong and will suggest that these three areas are not likely to change in the near future.

Reasons for US economic strength:

  1. Tax reform. When the US corporate tax rate was generally 40% and the rest of the free world had a marginal rate in the area of 25% US businesses faced a headwind. It was just plainly more expensive to operate in the US with the tax drag. This was changed with the tax legislation that was recently passed.  US corporations are having record profits as a result.  That is positive for all of us who have jobs in the USA.
  2. Removal of strangulating regulations. Over the past two years, a large number of expensive corporate regulations have been reduced or removed. The result is that US corporations have a lower drag from the expense and manpower required to comply with what many (including me) believe to have been unnecessary and costly regulations. The ultimate result is that (while US companies are still considerably overregulated) it is easier to conduct business and corporate profits are higher.
  3. Fracking. The cost of Energy has been one of the highest costs for individuals and companies. Until recently it has been the highest of our imports with billions of dollars of cost. US inventiveness and entrepreneurship has lowered these costs to a point where we as a country are becoming an exporter rather than an importer of energy.  The results have been that as corporations and individuals we are spending less in this area, and corporations and families can redirect their energy costs to more productive areas, and create more profits.

And so, we have a profits boom and a jobs boom. Unemployment across the spectrum has not looked this good in years. Business optimism is at an all-time high.

How will this be affected by the recent elections? The answer, I believe, is that for the most part, a divided Congress will not be able to take away these huge advantages, at least for the next couple of years. A divided Congress may be somewhat hamstrung, but this may be a time when lack of change is a good thing.

We are optimistic that the recent elections will not have a seriously negative effect on our high performing economy. Once the populace gets past the name-calling and negative noise, we are confident that the economy will continue to move in a mostly positive direction, and stock market profits will continue to be uplifting for our investors.

(Our thanks to Brian Wesbury of First Trust Advisors for sharing his thoughts, some of which are reflected above.)

Market Minute – Thanks to our Veterans and Fed says more of the same

First, we have a number of military people in our families and want to say thank you for the service you continue to provide. We know that we would not have the freedoms and lifestyle we enjoy without your presence. Thank You!

The current Fed meeting produced exactly what was expected. There was a minimal raise in interest rates, and the Fed continues to be ‘loose’ rather than ‘tight’ or in other words generally accommodative.  As Jerome Powell said, this is an excellent economy. It appears he will continue to move toward higher interest rates, which would appear to be appropriate for the currently strong economic expansion. This is generally good news for the markets. With GDP at about 3% and inflation at about 2%, we feel there is no need to be concerned with the current level of interest rates and markets are likely to continue to benefit from the relatively low-interest cost of doing business. 

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
www.denkinvest.com

This weekly article reflects news, commentary, opinions, viewpoints, analyses and other information developed by Denk Strategic Wealth Partners and/or select but unaffiliated third parties. DSWP provides Market Information for illustrative and informational purposes only. If you wish to receive this weekly commentary by email please contact us at 602-252-8700 or by e-mail at lindaw(at)denkinvest.com. If you are receiving this commentary via email and would prefer not to please let us know either by email or phone.

Ronald Denk is an Advisory Representative offering services through Denk Strategic Wealth Partners, A Registered Investment Advisor. He is also a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

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