Elliot H. Kallen

Financial Planner, Wealth Manager, Registered Principal
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Why Does the S&P Keep Going Up?

Despite the threat of a nuclear war, events in Washington, and a proliferation of more truly frightening headlines than ever before, the stock market has continued to go up. Why? While stocks breaking record highs repeatedly for months may seem at odds with all the bad news, rarely has the outlook for the economy been so bright. It is the best and worst of times.

Watch the full video on Prosperity's YouTube Channel

The International Monetary Fund, in its latest World Economic Outlook, revised its July estimate for world growth higher, to 3.7%. That’s way up from 2016, when the world economy grew by 3.2%. In July, the IMF estimated global GDP for 2017 would jump to 3.5%, and then to 3.6% in 2018. The latest revision bumped up the expected growth of the world economy to 3.6% in 2017 and 3.7% in 2018. A good world economy is good for everyone, including the U.S.

The Wall Street Journal asks more than 60 economists for their growth forecasts every month. In early October, the consensus forecast of those surveyed was for the US to average a 2.5% growth rate for the five quarters through September 30, 2018.The expected growth rate of 2.5% is much higher than the average GDP growth rate of just 2.1% during the first seven years of the economic expansion, which started in March 2009.

If the consensus forecast is right, then the U.S. is about to grow much faster than it has so far in this expansion. Economic growth drives earnings and earnings drive stock prices, so this is very good news for stocks. The average annual earnings growth rate over the decades on the Standard & Poor’s 500
stock index is 7.3%, but earnings are expected to grow by 12% in 2017 and 11% in 2018. That would be a surge in profit growth. Again, since earnings drive stocks, this is music to the ears of stock investors.

Adding to the good economic news, the Senate passed a budget resolution, taking a step toward enacting a massive one and a half trillion dollar tax cut.
Your current tax bill for 2017 could decline, and lower taxes would boost consumer spending, savings, and business activity.

Statistically, as this bull market grows older, the likelihood of a bear market a drop of 20% or more increases. As is always true, a correction of 10% or 15% is possible at any time, just on a change in sentiment or some bad unexpected world event. But the economy shows no signs of coming undone. Fundamental economic conditions that have accompanied bear markets in the past are not present now. To the contrary, inflation is tame, job growth has been strong, real growth in wages and disposable personal income are at record levels, and precursors of recessions in the past are nowhere to be found now.

Despite the value of the S&P 500 tripling since it bottomed in March 2009 and the flood of good economic fundamentals, irrational exuberance is not an issue.
Investors have not bid stock prices beyond their historical valuation range.

The average price of a stock in the S&P 500 trades at 19.9 times its trailing 12 month earnings and at 17.4 times the consensus bottomup forecast for 2018 earnings, according to consensus estimates. The price of the S&P 500, which has hit record highs repeatedly for months, broke another record last week, and the Dow Jones Industrial Average hit the 23,000 mark for the first time ever.

In the epochal opening sentence of A Tale of Two Cities, Charles Dickens described the years of The French Revolution as the best and worst of times, but the world may always seem to be in such turbulence and yet it keeps turning. Despite the frightening headlines and all that’s going wrong, the economic outlook is bright and the bull market could head much higher and run much longer.

Watch the full video on Prosperity's YouTube Channel

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Inflation Mystery

Seventy-one-year-old Federal Reserve Board Chair Janet Yellen, a Professor of Economics at Harvard and Berkeley for four decades before her appointment to lead the Fed in 2014, admitted at a press conference recently that the persistently low rate of inflation was a mystery. Perhaps then it should be no surprise that inflation’s mysterious behavior is behind the unexpectedly good financial news of 2017.
 
 
 
 
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Business Mergers and Acquisitions Acquiring and Selling a Company With Tax Efficiency and Opportunity

Prosperity is proud to present an educational event for Business Owners, CFOs and CPAs: Strategies for Acquiring and Selling a Business. Thursday November 9th: 5:30-7:30 pm at Prosperity's First Floor Conference Room. Guest Speaker - Ron Claussen Attorney at Law specializing in Business Sales Transactions

  • Enjoy free appetizers and drinks
  • Relaxed, no-pressure atmosphere
  • Feel free to bring family, friends and colleagues

Register here

Ron Claussen’s practice focuses on corporate law, with an emphasis on merging growth companies, venture capital financing and mergers and acquisitions. Ron continues his entrepreneurial approach to the practice of law, providing creative solutions for his clients’ business opportunities.

Prior to going into private practice in 1986, Ron was general counsel to Nanco Enterprises, and had oversight of Nanco’s subsidiaries, including Carrows Restaurants, Jeremiah’s Steakhouses, Elephant Bar and Restaurants, Rayne Corporation and Santa Barbara Aviation, Inc. In addition to his general counsel responsibilities for these companies, Ron became actively involved in the long range orientation of each entity. From 1978 through 1981, Ron was also president of the Rayne Corporation, a west coast franchisor of water treatment products. In only three years, he doubled the client base of this 50-year-old company through acquisitions and strategic alignments.

Ron is a member of the State Bar of California and the Blue Key National Honor Fraternity and was a charter member in the Gibson Inn, Phi Delta Phi. Ron served as the Pacific Coast Director of the Montana Wildlife Federation from 2008-2013, during which time he created and fostered MWF’s Montana Matters fundraising campaign (www.montanamatters.com); he currently serves as an At-Large Director of the National Wildlife Federation and as a member of its development committee. He received his B.A. from University of California at Davis in 1968 with departmental honors and earned his J.D. from the University of California at Davis in 1971.

For more information, please call Yvette Mays at 925.314.8501 or Register here.

 

 

 

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This Week's News in Wealth Management

The Federal Reserve’s new Beige Book for August rolled in, and it’s a recipe for broad, steady growth that is neither too hot nor too cold - a “Goldilocks economy.” Conditions are “just right” because the Fed feels no pressure to hit the brakes on the economy any time soon, particularly with inflation slowing.

Since growth is coming with almost no inflation, the Fed is nowhere even close to considering tightening credit.
That’s good because Fed intervention, when rates are hiked too much by policymakers and choke off growth, always eventually causes a recession. With no Fed action on the horizon, this 99-month-old expansion could very well surpass the record 120-month long post-War boom of the 1990s.

The Institute of Supply Management’s August survey of corporate purchasing managers came in this week at a strong 58.8%. Although this indicator has occasionally slipped below 50% during expansions, it has historically collapsed well below 50% right when the economy has fallen into recessionAt 58.8%, the manufacturing economy is looking good.

The ISM’s manufacturing purchases index is calculated monthly based on ten equally weighted components.
One of the ten measures new orders. The New Orders Index is a metric of business orders entering the pipeline at large manufacturing companies, and a good way of judging growth in the weeks immediately ahead. At 60.3%, new orders in August were exceptionally strong.

Of course, the manufacturing sector accounts for only about 12% of the U.S. economy. The non-manufacturing services sector is more important to American prosperity. While it has a limited history dating back only to 2008, the survey of purchasing managers in non-manufacturing strengthened from 53.9% in July to 55.3% in August, staying well above the 50% line where recessions become a concern.

The forward-looking component of this indicator showed new orders rose to 57.1% in August. This indicates the pipeline for non-manufacturing companies - 88% of the economy - is loaded up with new orders in the weeks immediately ahead. One caveat is needed here: the hurricanes that hit Houston and Florida are likely to cause some business disruption and create some new uncertainty.

With the economy cruising along at a sustainable pace and almost no inflation, a recession -the most likely cause of bear markets - is not on the horizon. But bear markets have occasionally occurred during expansions.

The Standard & Poor’s 500 stock index has repeatedly broken its all-time record-high price since the start of the year in a strong new leg of the eight-and-a-half-year bull market. A natural disaster, domestic political uncertainty, the standoff with North Korea, or some completely unexpected crisis could trigger a change in sentiment and a 15% drop in stock prices at any time. The economy shows no sign of weakness and a bear market is unlikely, but a bear market can never be entirely ruled out. However, Goldilocks conditions have set in motion a virtuous growth cycle that could continue rolling along, and stock prices could be driven much higher still.

As financial professionals, we are an authoritative and independent channel for news about wealth management.
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Join us for a Night of Education and Hors d'oeurves on September 14th.

Bring a friend or family member to our free event.  Learn How to Avoid Financial Landmines and Cyber Security and Beyond on Thursday, September 14th, 2017 from 5:30 pm until 7:30 pm at Prosperity’s First Floor conference Room.

The event will feature special guest speaker Brian Nash, Regional Director for Goldman Sachs Asset Management. Brian is responsible for managing Goldman Sachs’ Independent Financial Advisor relationships in Northern California. Brian joined Goldman Sachs in 2005 and brings over 12 years of industry experience to the firm. Prior to this role Brian was a Regional Consultant for Goldman Sachs in their Chicago office. Brian received his BA in Finance from the University of Illinois and his MBA from Kellogg University.

Elliot Kallen, Prosperity Financial Principal, will also be presenting. Elliot brings over 25 years of entrepreneurial business ownership experience to Prosperity’s financial planning and advising practice. Elliot is a keynote speaker on motivation and marketing in the independent financial advisor industry, utilizing his previous experience in international distribution to teach other investment professionals nationwide. He holds Series 7-, 24-, 63-, 65- and 66-licenses to offer securities. Since 1993, Elliot has been licensed to offer insurance and annuities underwritten by a wide variety of the nation’s insurers. in 2011, Elliot was named one of the Top 300 Advisors to the Defined Contribution (401k) Industry.

For more information please contact Yvette Mays at 925.314.8500 or register online here.

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Market Data

Market DataBank: 4Q 2017

Contact Info

2333 San Ramon Valley Blvd.
Suite 200
San Ramon, CA 94583
Phone: 925-314-8500
Fax: 925-314-8504
elliot@prosperityfg.com

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