As Janet Yellen and the US Federal Reserve Board prepare to possibly raise interest rates for the first time since 2006, the central question investors are contemplating is what will the affect be on both markets and the domestic economy?
For most investors, including myself, it is surprising the low interest rate environment, in place for so long, has not led to a dramatic improvement in consumer spending.
The good news is that the United States economy continues to grow at an annual rate in the range of one to three percent with slight variations in quarterly fluctuations.
Third quarter GDP was revised upwards to 2.1% (from 1.5%). Real personal consumption was 3.0% (revised down from 3.2%).
No Shows
As employment figures have slowly ticked higher, the combination of low energy prices and cheap borrowing costs have helped consumers cut personal debt totals.
As for the urge to splurge…it hasn’t happened.
Going into the last month of the year, corporate profits remain robust, but will decline for the first time in several years when compared to the previous year.
Much of the decline stems from the chopping in end prices across the entire commodity complex.
Most of these products sit at multi-year lows, so the expectation across these industries, along with plenty of others, is for continued consolidation, and probably in a major way.
Merger Mania
It would be consistent with investments banks benefiting from a record year for merger and acquisition activity.
Other industries which will probably participate include health care, pharmaceuticals and biotechnology, and the financial services arena.
With interest rates still at rock bottom levels, balance sheets flush, plenty of borrowing capacity, and ever higher regulatory burdens from a populist administrative posture, in my opinion, expect more of the same in 2016.
Equity Advantage
From a valuation and investment perspective, paying extra high prices for credit still seems foolish.
With over ten thousand choices in equities, plenty of opportunities remain in what has been an ocean of meager performance in 2015.
What you buy and what price you buy it at, as always, is the prime question.
Photo Credit: Day Donaldson via Flickr Creative Commons
