Summary: Nothing has changed during the past year, except that the US stock market has zoomed to near-record valuations, With no visible support in Fed policy, or corporate and economic fundamentals. The economy remains locked in slow growth. The exciting growth stories are mostly noise or cherries picked from the flood of economic numbers. Are investors hoping Trump will defeat the fiscal conservatives in Congress and sign a massive stimulus program? It’s a risky bet.
One amazing aspect of this US expansion cycle is its stability: slow steady growth despite large political and economic changes, foreign and domestic — combined with persistent (almost delusional) expectations for accelerating growth really soon. Another amazing aspect is the combination of slow economic growth and profit growth with high equity valuations. How long can this discordant picture continue?
None of this is difficult to see. At the beginning of every month I post a brief look at graphs of the economy. The conclusions are almost too obvious to state. Let’s do it again. The fantastic gap remains, waiting for the event to bring the economy and stock market back into alignment.