The economy has likely entered a modest expansion, according to The Commerce Trust Company in its recently-released Mid-year Market Outlook. The semiannual online newsletter provides national and global economic and financial market perspectives on fixed-income, equity and alternative investments for the company’s Private and Institutional Trust clients.
“We believe the U.S. economy has likely entered a self-sustaining moderate recovery with smoother roads ahead,” said J.-J. Landers Carnal, chief investment officer, The Commerce Trust Company. The reason for this, according to Carnal, is massive monetary policy accommodation (both here and abroad) which has significantly lowered interest rates and helped to support aggregate demand for goods and services while reducing risks. “In addition, deleveraging has improved both corporate and consumer balance sheets,” Carnal added. Additional highlights of The Commerce Trust Company’s Mid-year Market Outlook:
- Treasury yields are drifting upward as the Federal Reserve Considers tapering their bond purchase programs
- The Federal Open Market Committee is anticipating no Fed Funds rate hikes until the second half of 2015
- The S&P 500 has gotten off to a robust start in the first five months, rising about 15%
- Commerce Trust Company believes equities could see an additional 5 % to 7% growth in 2013. Valuations for the market remain reasonable.
- The housing sector is now well into what appears to be a strong and sustained recovery
- Looking outside the United States, global headwinds persist. The Eurozone is likely to remain the weakest of the developed countries
- Commerce Trust Company projects that U.S. GDP will grow in the range of 2% to 2.5% for 2013, with the unemployment rate declining modestly
- Potential breakout of consumer confidence which has been at lows for nearly four years
The overall U.S. bond market, as measured by the Barclays Aggregate Bond Index, returned -0.91% for the first five months of 2013. Investors have started to lose some of their enthusiasm for bond funds. Reduced customer inflows make the bond market more susceptible to additional selling pressure. “Over the remainder of the year, we anticipate money will begin to shift from fixed income funds over to equity funds as investors notice their fixed income returns dwindling,” said Carnal.