Five Reasons for Optimism About This Market

For most of 2017 and the early part of 2018, investors believed a benign narrative of accelerating output and productivity growth that was raising profits, slowing cost growth and extending the cycle. At the end of last week, the storyline shifted abruptly to rising inflation and cost pressures, and a Federal Reserve that is no longer friendly.

Here are five reasons why this lurch toward pessimism is misguided:

Investors have jumped from pricing in an increasingly benign economic and profits outlook to positing an environment with far more headwinds. The worst may happen, but the data at hand do not show it. However, there is no near-term data release that is likely to show that the accelerated growth and improved supply side remains correct. Real-time economic volatility masks underlying trends, but it doesn’t mean the trends are not there. Should there be any sign the supply side is working, either for exogenous reasons or because of tax reform, the positive scenario will be back.