My expectations:
-GDP growth will reach 5% by end of 4 years
-Fed Interest rate goes up 2%
-Major US Market Indexes up 25%
Originally Posted by gnadfly
There is a great article in the Wall Street Journal that explains why your exceptions will have a hard time coming true. But before I start note that you mentioned the Fed raises the interest rate 2%. Everyone in this section was saying the markets went up because the US was basically printing money and keeping interest rates at zero (0) so how will raising the rate 2% going to help the markets, wouldn't it make the markets go down? Anyway here are some thoughts from the article.
Through his last full day as president on Thursday, Mr. Obama oversaw a 166% gain in the S&P 500. Shares went from being dirt cheap to richly valued. The S&P traded at 11 times expected earnings in when Mr. Obama took office. Now its forward price/earnings ratio is 17—less dear than the 28 registered during the dot-com bubble, but still pricey.
To better gauge the market’s future returns, investors should look at another measure of valuation: At the end of last year, the total value of U.S. stocks was an estimated 169% of gross domestic product. That compares with 85% at the end of 2008, and is approaching the 177% valuation the market hit at the end of 1999.
The market zoomed because stocks were cheap, now it's no so much and we are getting close to markers of the last crash.
During the Obama years, companies kept a tight lid on costs, offering only incremental wage gains and only reluctantly investing in new capital projects. Only lately has that trend shifted as falling unemployment has begun reducing the pool of available workers, with wages beginning to pick up as a result.
Higher wages mean a bigger portion of U.S. output goes to workers and less to profits. As wages move higher, companies have typically moved to control them by shifting production overseas or putting more foreign content in what they manufacture here. Under President Donald Trump, that might be tough to do.
So it seems unlikely that companies will be capturing a bigger piece of the economic pie; if anything, they may be getting a smaller slice. It is, of course, possible for stock prices to keep going up relative to GDP, but that would require valuations to go beyond levels hit in the dot-com bubble.
Companies made a lot of money and while Trump and people on this section are saying that unemployment is 40% it is actually really low and as we reach a theoretical full employment cost are going to go up as companies pay more for workers as the labor pool decreases.
To sum up. It was easy to go from a low market to where we are now, growing 25% as you expected is going to be extremely difficult as the market becomes more and more over-valued. A correction is due and a lot of the isolationist stuff Trump has planned may cause it sooner rather than later.
Those are my expectations.