Business investment is powering the current recovery — not more public spending — which is reason to stay optimistic and to stay long in the financial markets now, according to Brian Wesbury, chief economist at
First Trust Advisors.
In a 2015 outlook by Wesbury and his colleagues Robert Stein and Strider Elass at the asset management firm, he said the fact GDP has risen at an annual rate of only 2.3 percent since 2009 obscures the underlying health of corporate finances.
Capital and infrastructure spending by businesses on tablets, smartphones, shale drilling technology, 3-D printing and cloud infrastructure, to name only a few advances, are powering the recovery, they explain.
"Investment has boosted productivity, efficiency and profitability. This statement clashes with relatively weak government productivity statistics, and many of those who think investment has been weak argue that there are underlying structural problems in the economy," the economists write.
"But overall corporate profits suggest the exact opposite. After-tax corporate profits have almost doubled since Q4-2008, up 12.6 percent at an annual rate."
In their view, the improvement in real profits in the U.S. economy "has been hard to see or hear through all the noise and confusion coming from politics and overly pessimistic forecasters."
They predict the new Republican majorities in Congress mean government fiscal policy will at last find a more conservative course. "In other words, big spending and debilitating regulation will remain on the sidelines."
First Trust is forecasting U.S. consumer prices will rise about 2.5 percent in 2015, and the 10-year Treasury yield should gain ground to 3 percent by the end of the year.
"In 2015, we expect a fourth year of double-digit returns and are forecasting a 15 percent increase in the S&P 500 to 2,375," the First Trust team predicts.
"Optimism is finally catching on. Stay long," they conclude.
David Kotok, chairman and chief investment officer at asset manager Cumberland Associates, is likewise bullish on the U.S. economy and the domestic stock market.
"We have held to that position through volatility, and we expect more volatility," he writes in a new market commentary.
"Volatility restoration is not a negative market item. It is a normalizing item. We may wind up seeing the VIX and the stock market rise at the same time," Kotok says. "We remain nearly fully invested in our U.S. ETF portfolios."
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