Concerns have arisen that the current U.S. recovery is long in the tooth, but the expansion continues to show that age is nothing but a number. In fact, the U.S. and other countries have enjoyed significantly longer expansions in the past. Although we are likely closer to the end of this cycle than the beginning, few of the imbalances that typically precede a downturn have emerged. Thus, there is reason to believe the expansion can continue.
With wage growth accelerating, the job market tightening and household debt low, look for continued consumer strength in 2017. The U.S. remains a tale of two economies — with consumer strength partly offset by relatively weak, albeit recovering industrial activity — so expect modest growth. Uncertainty over the direction of the Trump administration may linger for months, but prospects for more infrastructure spending and other business-friendly policies could help the industrial economy.
Valuations for most sectors are meaningfully higher than their 10-year averages, most notably among traditional dividend payers, such as utilities and consumer staples. This is why selective, active investing is essential to uncover opportunities in individual sectors and businesses. For example, companies in oil exploration and servicing, like Chevron and Schlumberger, and other areas that have faced significant challenges, may offer potential value for long-term, active investors.