GDP Grows 3.3% Annualized in 3rd Quarter

Stocks have climbed once again to new record highs this morning in early market trading.  This is a continuation of the tax reform rally which received news late yesterday afternoon that the Senate Budget Committee vote cleared the path for the bill to make it to the Senate Floor for a vote. The near party line results show the resistance Democrats must allow for this to pass.  However, since republicans have a controlling majority in both the House and Senate, odds of a tax reform bill becoming law are favorable.  Although a report from the Congressional Budget Committee (CBO) reported that the plan would harm our County’s most vulnerable segment, that seems to have not slowed down the pace of progress.  For now, stocks will likely continue to benefit from the plan’s advances, which is harmful to mortgage interest rates.

Second estimate for 3rd Quarter GDP was released this morning, showing that the US economy grew at a 3.3% annualized rate.  This strong rate of growth is part of the reason the Unemployment Rate is at a 16-year low. Further, it adds to the concern of what the proposed tax plan will do to the economy in the long term.  The fear is that it will produce a massive rate of growth that becomes unsustainable.  This would greatly increase the odds of an eventual bust that could be very dramatic.  The reality is that we must tread lightly with stocks at such lofty levels and the labor market as tight as it now is.  Adding growth without additional workers will cause more harm through wage inflation than the plan seems to protect against.  The two most damaging long term economic conditions are inflation and deflation.  This creates concern of inflation.

With bonds still under significant pressure, we will maintain our locking bias.