Does the US Expansion Have Years to Run?

Leo Kolivakis  |

Hugh Son of CNBC reports, Jamie Dimon says the US economic expansion ‘could go on for years’:


After crushing expectations, posting record first-quarter profit and revenue, JP Morgan's JPM Dimon has every right to feel very good about the prospects of the US economy going forward.

In fact, should the US economy continue to grow until July, it will be the longest expansion in US history, besting the period from 1991 to 2001.

But not everyone shares Jamie Dimon's enthusiasm for the US economy. Former Fed Chair Alan Greenspan appeared on CNBC earlier stating the US economy will start to fade ‘very dramatically’ because of the entitlement burden:


In their quarterly economic review, Van Hoisington and Lacy Hunt begin by describing the downturn unfolding right now:

When debt levels are inordinately high, more debt only provides a short-term boost to the economy but it fades quickly and is followed by weaker economic activity. Stated another way, when debt levels are already very high, more debt is deflationary, not expansionary over the long run.

They then go through an incredible historical analysis to conclude:


But if the US economy is slowing, you wouldn't know it by looking at the stock market, the S&P 500 is up 16% YTD and the major sectors are all up so far this year (image, courtesy of barchart):


If the US economy is slowing, why are these stable/ defensive sectors lagging cyclical sectors like Financials XLF, Industrials XLI and Energy XLE?

We are at an interesting point right now. Is the S&P 500 ETF SPY about to break out to make new highs or will it roll over the the coming weeks?

Click to enlarge

Click to enlarge

Click to enlarge

On another positive note, emerging markets stocks EEM keep grinding higher after a sharp selloff last year:

Trade Commission-FREE with Tradier Brokerage

Click to enlarge

What this tells me is despite growth worries, things may not be that bad after all. In fact, the global Purchasing Managers' Index (PMI) for the manufacturing sector inched up in March, coming in at 51.7, lifted by robust manufacturing activities in China and the United States.

However, the PMI reading for Europe suffered a four-month losing streak and fell below the 50-point boom-bust line to 49.9, extending intensified downward pressure.

So will Europe drag the US lower or is the US slowdown going to intensify in the coming months? Will US stocks make new highs and sustain their unbelievable momentum? Is Jamie Dimon right about the US economic expansion?

I don't know, I'm just giving you some food for thought in my weekly market comment. All I can tell you is I remain cautious for now and would use the weakness in some stable sectors to buy them here and would start taking profits on the sectors which have been on fire lately.

Below, Nobel-prize winning economist Paul Krugman discusses the next recession, unions and wages. And Alan Greenspan discusses why growth won’t last as the US labors under the burden of growing entitlement programs and weakness around the world.

Lastly, with stocks near all-time highs, is everything awesome again? With CNBC's Melissa Lee and the Fast Money traders, Tim Seymour, Steve Grasso, Karen Finerman and Guy Adami.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.

Market Movers

Sponsored Financial Content