Brett Miller returns to offer his outlook on the economy. Miller is senior portfolio manager for Key Private Bank in Portland. He talked with Maine Public Radio's Morning Edition host Irwin Gratz.
GRATZ: Welcome Brett.
MILLER: Thank you.
GRATZ: We've just heard another 200,000 jobs were created nationally in January. Unemployment remains at its lowest level since 2000. Can we expect this kind of activity in the job market to continue this year?
MILLER: Perhaps one of the flies in the ointment for this current economic cycle: The unemployment rate is quite low right now at 4.1 percent. So there's not a lot of slack, and scarcity of workers could be an issue down the road. It's good news, but at the same time it's a rather important indicator of an aging economic cycle.
GRATZ: You know it also makes me wonder too if this is not another facet of the immigration debate, where we have such a tight labor market and we have an administration that's determined not only to curtail illegal immigration but legal immigration as well.
MILLER: You know I can't say that immigration is a major issue in terms of the current employment situation. You know, we've been at this low unemployment level for some time now. So it's interesting that we're getting the stimulus in the market right now at this point in the cycle, and many economists do expect that it's likely to become inflationary.
GRATZ: We have seen a couple of down days when the stock market recently. Do you think those are blips or are they signs that the rally that's been just charging ahead from last year is finally going to run out of steam?
MILLER: Well that's a that's a great point. 2017 was an incredible year. You know, we saw tremendous returns on the S&P. It was also a year that was marked by very little volatility. We saw over 40 weeks on the S&P without a 3 percent correction. Not unprecedented, but we haven't seen that sort of lack of volatility for a long time. So you could certainly argue that we're due for a pullback, and we do think that that will happen. However, we're not looking for a bear market. And the reason that we were not looking for that is the economic underpinnings are really very solid right now, and 2018 is expected to be similar in terms of economic growth. And then, of course, the real engine for the stock market is corporate profits, and that too is firing on all cylinders.
GRATZ: Is that because it’ll justify the valuations of stocks that we're seeing right now?
MILLER: Exactly right. We have seen, you know, the market getting a little bit ahead of itself, really, by just about any metric that you look at. We're still a little bit ahead of ourselves, so I think a couple of things could happen: Obviously, a correction would set that rate, but also the market could trade sideways while earnings catch up to the current valuation.
GRATZ: Which could be some of what we've been seeing in the last week, as you begin to see those ups and downs.
MILLER: Exactly right. You know, we all know that cycles don't go forever in one direction. And this is part and parcel, I think, of normal market behavior.
GRATZ: So what are you recommending these days to investors?
MILLER: Well, we are largely recommending that investors stand pat. In terms of their current allocations. We are favoring stocks over bonds, but we've been doing that for a long time; and we're also focusing on the international side of the house as we move forward. We think that perhaps international markets have a little bit more opportunity to continue their expansion.
GRATZ; I've heard people say before that economic expansions don't die of old age - something comes along that will make things turn down. So what could actually make this expansion stop?
MILLER: Another version of what you just said, that I've heard at least, is economic expansions don't die of natural causes - they're killed by central bankers. And I think that may well be the case in this current cycle. People are very intent on what the Fed has been doing and eventually, historically, they raise rates to a high enough level that it chokes off growth. So I don't expect this cycle to be necessarily any different, and it's really more a question of when than if.