Investors: Avoid Becoming Protectionists Within Your Portfolios

By Brent Schutte via

For much of this recovery and expansion, many have opined that this economic cycle would ultimately end very differently than those of the past. We have resisted this narrative and instead explained our belief that this cycle will indeed follow the same path and end like all others. We contend that it is just taking longer to get to each of those “milestone points” along this path because the scars of the Great Recession were deep. As a result, both business owners and consumers have behaved more moderately and, from a political perspective, every action was focused on making the world safer. Now these scars appear to be healing. With another quarter in the books, we believe the preponderance of the evidence points to a U.S. economy that is pushing down a familiar path that is similar to those of the past.

Indeed, the biggest “abnormality” those who believe this time is different have evidenced is that inflation has remained constrained. We believe this narrative is changing and looking more normal. Indeed, during the second quarter, the U.S. Core Personal Consumption Expenditures Price Index hit the Federal Reserve’s 2-percent target for the first time since 2012. And we believe that forward-looking measures of inflation continue to point higher as economic growth strengthens. While these rising inflationary pressures will be a growing risk, we continue to believe that the Federal Reserve will act with a velvet touch regarding interest rate hikes.

Economic Growth is Finally Broadening

Real time economic indicators continue to point to more – not less – economic growth. For many years, the U.S consumer did the heavy lifting while business investments and the manufacturing sector were lackluster. That is no longer the case. Indeed, the Institute for Supply Management (ISM) Manufacturing Index continues to post robust readings.

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