Second Half 2013: The Best May be Ahead

Economist lists factors that could boost market returns even higher through the balance of the year.
By MainStreet Team ,

By Hal M. Bundrick

NEW YORK (

MainStreet

)--Despite a turbulent ride, the S&P 500 finished up 12.6% year to date through the end of June, the strongest first half of the year returns since 1998. As impressive as that is, at least one noted economist is saying more good news is coming for the remainder of the year.

"On revision, the U.S. economy only grew by 1.8% (annualized) in the first quarter of this year and likely grew even more slowly in the second quarter," writes Kenneth Goldstein, economist for The Conference Board. "(But) most projections expect better results for the second half of the year."

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How can that happen? Goldstein counts the ways.

"The sequester will begin to run its course," he says. "The improvement in the housing market will continue and the domestic economy may even get a little boost from better global growth. One key issue going forward is continued moderate growth in the labor market. More job growth, and perhaps even a little more wage growth, not only will further boost recovering consumer sentiment but will allow consumers to finally purchase some long-delayed furniture and appliances. In sum, the best of 2013 may be ahead."

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Goldstein offers additional evidence supporting his optimistic view for the balance of the year:

  • Vehicle sales -- The pace of vehicle buying has remained close to a range of about 15.0 to 15.5 million units, largely as a result of long pent-up demand. Sales in May were closer to 15 million and will likely remain there through June and perhaps even July.
  • Job growth -- Goldstein notes that employment has been surprisingly strong over the first five months of this year. Job growth could dip a little this summer, from an average of close to 170,000 new jobs a month, to perhaps not much more than 150,000. Manufacturing hiring remains muted. Construction is adding a few more jobs. But the "core" service sector (which excludes health and education) has been responsible for much of the job growth in the first half of this year. And the retail sector (both clerks in stores and help in the food and drink establishments) have been relatively strong but could be areas where growth this summer might be a little slower.
  • International expansion -- Global trade increased by 1.4% in April, after declining in both March and February, according to data from the CPB Netherlands Bureau of Economic Policy Analysis. Exports from Africa and the Middle East increased by 3.1%. Surprisingly, they rose by 2% in both the U.S. and in Japan. Not surprisingly, exports from the Euro-area fell 1%. So is trade finally getting back on track? Only if the pace of industrial activity recovers around the globe, Goldstein says. "Projections suggest this is the mostly likely path over the course of the second half of 2013. It will be good news if this pans out."

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Goldstein also notes that the recent rise in mortgage rates causes concerns about the healing of the housing market, but might also lend a clue as to how strong the recovery is if rising rates do not significantly slow home sales.

--Written by Hal M. Bundrick

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