There was very little economic data released in the U.S. last week, but the story is still the same: the U.S. economy is growing and the risk of recession is low. Most economists expect the economy to grow around 3% in the second quarter (April through June); meanwhile, Simply Money Advisors believes the U.S. economy will grow around 2% for all of 2017. This is good news for your investments, as corporate profits are on track for about 15% to 20% growth (on average) in 2017. Cincinnati-based Kroger will report earnings Thursday morning, June 15th.
Across the pond, the United Kingdom was back in the news last week. Voters hit the polls, as Prime Minister Theresa May called for an election to strengthen her majority in the government. This would have given her a stronger hand in Brexit (British + exit) negotiations to leave the European Union. However, her move backfired, and she lost her majority. Her party was able to form a coalition government, but May is now on borrowed time. There is a chance she won't be Prime Minister by the end of the year. This vote does not change the fact that the United Kingdom will leave the European Union, but it increases the uncertainty of the entire process. The European Union is a political and economic grouping of 28 member nations mainly in Europe. May wanted a “hard” Brexit, which would result in closed borders and continued cuts to government spending in the U.K. It appears voters want a “soft” Brexit. A soft Brexit would be a good thing for businesses because it would likely result in better economic growth in the United Kingdom. Meanwhile, economic data in Europe continues to be strong, which is good for corporate profits, including American companies that sell products overseas.
This is a busy week for economic data in the U.S. with inflation, retail sales, and housing data being released. On Wednesday, June 14th, the Federal Reserve, our nation’s central bank, will likely raise short-term interest rates by 1/4 of a point to a range of 1.0% - 1.25%. There’s also about a 50% chance of another interest rate hike later this year.
The Simply Money Point
Simply Money Advisors believes the economy is strong enough to handle the Federal Reserve’s plans. Just remember: one of the biggest threats to ‘bull’ stock markets like we’re in now is a recession. And right now, the data we’re looking at shows that the risk is low.