Mark M. Martiak
Managing Director Investments, AIF®

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© 2018 Mark Martiak, AIF®  |Managing Director Investments

Economic Growth Stays Soft But Is There a Spring Swoon in Sight?

Wednesday, May 1, 2013

The U.S. economy grew ever so slightly in the first quarter after nearly stalling late last year, but sequestration and cautious investments by businesses highlighted the sustaining pressures that could cause the recovery to weaken in the summer months.


The nation’s gross domestic product, the broadest measure of goods and services produced across the economy, expanded at an annualized 2.5% pace in the first quarter of 2013.  This followed a 0.4% rate in Q4 of 2012.


I believe the economy will and the recovery will likely remain uneven at least through the summer, despite months of optimism tied to the improving housing market and divergent from the red bull stock market that reached new all-time highs during the first three months. The growth trajectory for the economy is shallow as money is being made most weeks by investors.


I don’t see the Federal Reserve and Chairman Bernanke slowing its bond buying until sometime in 2014 especially since the mandate is to lower the unemployment rate to 6.5%.  While a 5%-10% pullback or “spring swoon” would be healthy and not surprising, it’s become increasingly challenging to buy on the dips since they too are so shallow and infrequent.


As for inflation, a key measure tracked closely by the Fed showed underlying prices – those excluding volatile food and energy costs – rising just 1.2% over the year and well below the central bank’s 2% inflation target.


With earnings season in full swing, stocks rose this past week on stronger-than-expected reports. Nearly 70% of the S&P 500 companies that reported results as of Friday the 26th of April have beaten estimates. A large drop in weekly jobless claims also supported the market making last month’s (March) week jobs report an afterthought.  I always say to my clients – watch the revised numbers and see the bigger picture when it comes to their investment portfolios.


Nearly four years since the recession ended, the pace for economic expansion remains grindingly slow.  In fact, it reminds me of the New York Knicks and their grind it out victories in the 90s except that they couldn’t get past Michael Jordon’s Bulls when they needed to. This year is different for the long suffering Knicks fans – not withstanding a miraculous Celtic comeback from a 3-1 playoff series deficit – their optimism rules.


Optimism rules – and I’ve said it to my clients throughout this sustained red bull market rally.


The net worth of American households grew by $5 trillion in the first two years of the economic recovery, but not everyone shared in the riches. The top 7% of American families saw their wealth grow to $25.4 trillion in 2011, up from $19.8 trillion two years earlier. The remaining 93% of Americans experienced a decline in net worth to $14.8 trillion, down from $15.4 trillion, according to the Pew Research Center. The dividing line between the two sides was $836,033 in 2011. The 8 million U.S. households with a net worth at or above that amount saw their average net worth rise by 28% from 2009 to 2011. The 111 million remaining American households saw their wealth decline by 4%. The difference is because the rich are much more heavily invested in the stock and bond markets, which rallied during the recovery. Less affluent households typically have their wealth tied up in their homes, and the housing market remained flat between 2009 and 2011. By 2011, the average wealth of the top tier was almost 24 times that of the rest of Americans. Two years earlier, the ratio stood at less than 18 to 1. (Source:


Maybe we should view the overall economy as a picture of slow growth, and yet grinds along while the stock market is enhanced by the Fed’s quantitative easing programs. This adds to the wealth affect for households and that will sooner or later help spending and business investments which will spur economic growth. Sooner or later the Knicks will overcome the Miami Heat – Knicks fans can tell you about spring swoons.


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