Some Economic Improvement
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Consumer data entered the fray last week to mixed results. Personal income was up 0.3% in May, but concerns about the stagnating recovery resulted in no gains to personal spending. With income and spending little changed, the personal savings rate also held steady at 5.0%. The personal savings rate spiked in 2009, but fell after consumers were confident enough to dip back into their savings accounts.
Concern about inflation is abating as well, after one-year-ahead expectations reached a peak of 4.6% in April. In the most recent survey, consumers’ expectation of year-ahead inflation was 3.8%.
There is apparent strength in several areas of the economy. Research from Fidelity Asset Management shows that while some key areas of the economy (housing and employment, in particular) are struggling, there are a number of positive data points. Fidelity’s economic indicator scorecard shows strong and improving data in manufacturing, corporate earnings and capital expenditures.
The final point to consider is that markets tend to perform best in the final two years of the presidential cycle.
From 1900 to 2009, year 3 and year 4 of the presidential cycle outperform years 1 and 2 by a wide margin. In fact, average annualized performance in year 3 is 12.6% and year 4 is 7.5%, based on research from Ned Davis.