Where Are We Going?

So what’s the economy doing?

As we look to 2014, several trends are in place. Profit margins for domestic companies are running over 12%–an historic high. World trade seems to be picking up, led by increases in the United States and China. Employment growth in the US has settled in at slightly less than 2 ½ million jobs per year—enough to pull unemployment down gradually. And inflation remains modest, running at around 1 ½%.

All this means that economic growth in the US has picked up. The core trend is for steady—not manic—growth. With stocks up 30% last year, investors are wise to be cautious. The market isn’t cheap, although there are pockets of value. Buzz around new offerings like Twitter—a 2300 person company that trades at 55 times sales, 20 times more expensive than Amazon (!)—do raise concerns about bubbles. We’ve seen that movie before.

Still, it’s hard to see where the economy might come unglued. The fiscal follies in Washington seem to have settled down, and global growth is strengthening. But we don’t know what we don’t know. The only constant in the market is change.

Douglas R. Tengdin, CFA

Chief Investment Officer

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