Should We Be Concerned About the U.S. Economy?

With equity markets continuously hitting all-time highs this year, we frequently get the question from our clients as to when will the bull market end. The level of skepticism remains high even as the S&P 500 Index crossed four major milestones this year, passing the 2,300 level in February and recently crossing the 2,600 level. With that said, it is understandable that investors would question equity markets at these levels since it has been almost two years since the last 10 percent correction and nine years since the last bear market environment. However, when trying to predict the next major market downturn, we believe it is important to focus on economic fundamentals rather than excessive valuations or the length of time from the last correction. From a historical perspective, bear markets (i.e. decline of 20 percent or more) tend to be caused by economic recessions rather than excessive valuations. Therefore, the more appropriate question investors should be asking is “is the U.S. economy heading towards a recession?” We believe the answer is no, at least not in the foreseeable future.

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