Phil Castle, The Business Times
After years of fretting over scary stories about impending financial disaster, investors should enjoy a far happier tale in a return to normal conditions and the prospect for continued stock market gains.
In sum, Doug May offers this advice: “Don’t worry, be happy.”
May, president and chief investment officer of the May-Investments wealth management and investment advisory firm in Grand Junction, detailed a mostly upbeat assessment in updating his economic outlook for 2013.
Increasing home and auto sales, along with other indicators, reflect continued recovery. A bull run that’s carried the stock market to record heights could end, but May believes the rally hasn’t yet lasted too long or gone too high.
And while prospects the Federal Reserve could scale back its economic stimulus program and interest rates could rise have triggered concerns, May said the so-called tapering actually constitutes a good thing in signalling an end to the need for such efforts.
Risks remain. But many of the deep-seated fears that have persisted in the aftermath of the Great Recession aren’t justified, May said. “I think we’re more afraid of things than we ought to be.”
Stories about the impending collapse of the dollar, economic depression, hyperinflation, a stock market crash and the use of gold coins as a currency with which to buy food — not to mention ammunition — never came true, he said. “The worst case is not happening.”
Rather, the story has been one of continued recovery and a move toward normal conditions, May said.
Home and auto sales have rebounded. The proportion of available manufacturing capacity in use has increased, although not yet to the point of promoting expanded facilities and increased staffing, he said.
“We are back much more on normal footing.”
Meanwhile, many of the predictions for 2013 May made at the beginning of the year have come true to a degree.
While he projected annual growth in gross domestic product of 2.5 percent, the broad measure of goods and services produced in the country has increased more slowly at 1.7 percent. Consumer and business spending has remained on track, but increased oil imports have affected the trade balance, he said.
The U.S. unemployment rate was forecast to drop to 7.2 percent by December. The rate stood at 7.4 percent in July.
May also accurately predicted short-term interest rates would remain unchanged, long-term interest rates would move higher and stock prices would continued to trend upward. “The year is unfolding on track in a reasonably good way,” he said.
Given improving economic conditions, the prospect the Federal Reserve will scale back the purchases of Treasury and mortgage-backed securities intended to stimulate the economy makes sense, May said. So does the prospect of rising interest rates.
While the stock market has climbed to record levels and stock prices are no longer cheap, valuations remain reasonable, May said. Additional gains likely will depend more on increasing earnings than valuations, but more normal investment returns of around 6 percent are likely, he said.
Given past rallies, the current stock market rally isn’t yet too old or gone too high, he said.
The biggest question, May said, focuses on when the latest business cycle will end.
An index of leading economic indicators May developed reflected the effects of the so-called fiscal cliff, but not so much the effects of automatic government spending cuts imposed under sequestration, he said. The index recently has turned upward on such strengthening indicators as corporate profits, drilling activity, new factory orders, semiconductor sales and retail sales.
“For the rest of the year, I think we can continue to grow,” May said.