In the title of his quarterly message at the beginning of this year, our outgoing president Sam Stewart referred to a popular rumination of baseball legend Yogi Berra: Seems Like Déjà Vu, All Over Again. Sam also observed that, “For just about any market force that might normally be expected to derail the status quo of continuing growth, an opposing force has emerged to keep the expansion on track.”
Over the six months since that message, and particularly during the second quarter, we’ve seen plenty of factors with the potential to cool off long-term global economic growth. We’ve also had multiple instances of that vague déjà vu sensation of having been here before—because these factors haven’t had overly significant impacts on the resilience of the economy and the financial markets.
Economic indicators and market action in recent years serve as reminders that assuming worst-case scenarios is usually a mistake. Neither President Trump’s most-controversial actions, nor the tensions surrounding the Brexit referendum, nor other geopolitical events have put the brakes on generally strong world-wide economic growth and stock prices. So while disturbances like the recent fractured political situation in Italy and the intensifying international trade spats have created some volatility and may continue to do so, we believe that the largely synchronized global growth trends are still on track.
Therefore, I’ve adapted the déjà vu theme for this quarterly message—our first message since Sam signed off in April. The adaptation I’ve used here, Déjà Vu Squared, is a tribute to Sam’s essential theme over the past several years: expect more of the same, at least in the near term—but stay keenly alert for potential trouble spots. For our part, we think such trouble spots will have more to do with overvaluation and/or faltering fundamentals in specific investments, rather than with the macro events we’re likely to see in the news.
In a broad sense, what we mean by “more of the same” is we expect ongoing economic expansion and continued opportunities in world-wide financial assets, despite geopolitical uncertainties and the long tenure of the current bull market. In this quarterly message, I share our thoughts on the economy and the markets. Going forward, other members of the Wasatch investment team will rotate in to write our quarterly messages—providing you with additional perspectives.
While there was some nervousness in global financial markets during the second quarter of 2018, world-wide economic news was generally positive. In the U.S., the news was particularly good. The unemployment rate has trended downward for several years, and at about 4% in June the rate was close to the lowest level in 50 years. Other favorable trends included modestly rising wages and inflation. As a result, consumer confidence stayed relatively strong—even among lower-income Americans. Moreover, corporate earnings broke record levels on a widespread basis. And what we heard anecdotally from corporate management teams matched up with the economic indicators.