The Long and Winding Road

"Why leave me standing here? Let me know the way."The Beatles

The Beatles – formed in 1960, the English rock band was fronted by John Lennon and later by Paul McCartney. Other members included George Harrison and Ringo Starr. As illustrated by “Beatlemania,” the band is regarded widely as the most influential rock band in history.

Executive Summary

In this month’s Investment Outlook we highlight a number of indicators and how they line up with growth in
order to determine how far along the U.S. economy is in the recovery cycle. In this month’s Investment Outlook we discuss:

  • before, then, and now—a study of the economy and markets, where they have been, where they are
    now, and what conclusions can be drawn for the future;
  • transitory hurricane effects on the economy and pre-preview of 2018; and
  • what we expect from the markets.

See your PNC advisor to discuss best positioning your portfolio and revisit our October 2017 Fright or Flight, where we discuss geopolitical tensions, politics, and the implications of severe weather.

The U.S. economy has traveled far over the past 10 years and is on much more stable ground than it was during the financial crisis and global recession. From an economic perspective, the United States exited recession and continues along a path of economic growth, which has been uneven in some spots. The expansion began in July 2009 and is now more than eight years old. This is somewhat longer than the average length of expansions experienced in the post-World War II period, leading investors to question if there is a change in store.

The economic recovery at times felt less than robust and has certainly felt some bumps along the way. But it persists, albeit at a somewhat tepid pace. While remaining mindful of the possibility of temporary setbacks, we believe the economic recovery will continue in the near term.

The financial markets have also come a long way since the market bottomed over eight years ago, as measured by the S&P 500®. In March 2009, equity investors sold stocks in a flight to safety amid the financial crisis. Markets have been in a strong bull pattern since the dark days of 2009.

With the Dow Jones Industrial Average, S&P 500, and NASDAQ repeatedly testing new highs over the past weeks, many investors are also wondering how far this bull can run. On March 9, 2009, the S&P 500 closed at a low of 676.53; it now hovers around the October 20, 2017, closing high of 2,575.21. But despite the strength of the markets, this year has not been without surprises and market risks.

PNC expects the economic expansion to continue throughout 2017 and into 2018, forecasting 2.2% growth this year and 2.5% for 2018. The job market should be close to full employment later this year; job and wage gains are helping boost personal incomes; consumer spending should continue to lead economic growth; and the housing market will probably continue to gradually recover. The short‑term impact from the hurricanes is likely
to be offset by rebuilding efforts in late 2017 and early 2018.

We expect markets to continue to watch the Federal Reserve and other central banks worldwide for shifts in monetary policy. Movements in inflation and currencies are key factors to watch this year. We believe unforeseen outcomes in global politics could continue to surprise. While we acknowledge the difficulty for us, or anyone, to predict with great accuracy the short‑term behavior of stocks, we feel investors should continue to focus on their long-term goals, working with their PNC advisors to develop an asset allocation that
matches their risk and return objectives.

PNC’s six traditional asset allocation profiles are shown on the back page of this outlook.

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The Long and Winding Road

For more information, please contact your PNC Advisor or call 888-762-7226 to request an appointment with a PNC Wealth Management Professional.

Bill Stone, CFA®, CMT

Managing Director, Investment and Portfolio Strategy, Global Chief Investment Strategist

 

Chen He, CFA®
Senior Portfolio Strategist

Marsella Martino
Senior Investment Strategist

Rebekah M. McCahan
Investment Strategist

Paul J. White, PhD, CAIA®
Director of Portfolio Strategy

Michael Zoller
Investment Strategist

For more information, please contact your PNC Advisor or call 888-762-7226 to request an appointment with a PNC Wealth Management Professional.

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