Capital Market Indicators for June 25

U.S. Economy—Remember synchronized growth? The U.S. economy accelerates while the rest of the world falters.

• We expect 2018 real U.S. GDP to grow at about a 2.5%-3.0% rate. In our opinion, the probability of a U.S. recession is low.
• Based on the Federal Reserve Bank of Philadelphia’s U.S. Coincident Index, our gauge of U.S. economic activity (above left) registers a February 2018 reading in the 62^rd percentile.
• Recent developments:
  • In a move that was widely expected, the Federal Reserve raised interest rates 25 bps following its June FOMC meeting. Policymakers’ projections indicate two additional hikes by the end of the year. Previously, one additional hike was expected.

Capital Markets—After returning more than 37% in 2017, emerging markets struggle while facing a rising dollar.

• Valuation:
  • Based on the S&P 500 trailing 12-month price-to-earnings ratio, our gauge of U.S. equity valuation (above center) registers a current reading in the 15^th percentile.
• Sentiment:
  • Based on the National Association of Active Investment Manager’s Exposure Index, a contrarian indicator, our gauge of U.S. stock market sentiment (above right) registers a June 20, 2018 reading in the 13^th percentile.