The U.S. economy is showing positive signs of continued recovery with a variety of sectors witnessing significant growth, according to BMO Private Bank’s December Outlook for Financial Markets Report.
According to the report:
* Corporate profits are at their highest levels since the early 1950s, with net profit margins at 10.7 percent.
* Both 401(k) plans and home prices are rising, leading to a boost in consumer confidence.
* The S&P 500 has rallied more than 60 percent since the first quanitative easing announcement at the end of 2008.
* Mortgage rates cascaded to all-time lows in Q3, expanding home affordability by approximately 25 percent.
* Retail sales are up nearly 5 percent year-over-year.
“Although Federal Reserve Chairman Bernanke’s monetary plan has taken some time to unfold, we’re beginning to see evidence that it is working,” said Jack Ablin, chief investment officer, BMO Private Bank. “If interest rates remain as low as they currently are, they will boost equity and housing values and embolden consumers. That, in turn, will boost corporate profits and employment.”
As the January 2013 amendment deadline looms, investors are feeling wary that the United States may lose its AAA credit Fitch Rating if the Fiscal Cliff is not properly addressed.
U.S. equity markets fell 5.5 percent in the third quarter of 2012, with investors concerned about increased regulation and higher taxes. The financial and energy sectors were affected the most.
According to the report, both the United States and China – the world’s two largest economies – face income inequality.
“Severe income inequality is not economically sustainable and consistent inequality impairs economic growth,” said Ablin. “At home, after decades of productivity gains through global outsourcing investment in technology, the difference between America’s wealthy and everyone else widened. China, in particular, also faces this challenge and could consider adopting a stronger social safety net to reduce inequality and promote consumption.”
BMO Private Bank is a trade name used by various financial service providers within BMO Financial Corp. Banking products and services offered through BMO Private Bank are provided by BMO Harris Bank N.A. and its bank affiliates.
The full report can be found at: www4.harrisbank.com/Insights/Publications.