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November 8 couldn't have come soon enough. Not only is the U.S. presidential election finally over, but the stock market has rallied to new all-time highs since then.
Feeling like you've missed the boat? Fear not. There's reason 2017 could be another positive year for stocks. Here are three charts indicating just that.
Rising household income
The average family has had rough going since the financial crisis in 2008. Adjusted for inflation using the Census Bureau's Consumer Price Index, income fell sharply through 2011 and 2012. Since then, though, families' paychecks have begun to rise, including a nice 5% surge during 2015. Initial indications are that 2016 will notch yet another rise.
Image source: Federal Reserve Bank of St. Louis.
Measuring inflation is a tricky business, considering that each person experiences a different rate of increase depending on what they need to spend their money on. For example, a young adult renting an apartment is more prone to rental expense increases than a retiree, who might be more sensitive to increases in healthcare costs.
Nevertheless, measuring household income adjusted for average cost-of-living increases is a key metric for determining economic health. The average payday rising over and above costs of living would indicate that people have a few extra dollars lining their pockets each month. That is good news for the U.S. economy.
Rising consumer spending
Consumers are, to understate it, very important to businesses. The more money spent at a company, the better that company's chances of turning a profit and growing over time. Since bottoming out in 2009, the amount of money consumers spend each monthadjusted for inflation has steadily risen over 18%.
Chartsource: Federal Reserve Bank of St. Louis.
In the U.S., the amount of money spent by households accounts for about 70% of GDP, the total value of goods and services produced in any given year. It is unsurprising, then, that many investors and businesses keep tabs on consumer spending growth since it can ultimately lead to higher business revenue and profit.
This figure has moved up in fits in starts over the last few years, including a few sputters in growth during 2016. The slow but relentless increase in spending, though, has helped fuel economic and business recovery. That figure remaining in an uptrend is another reason to be positive about the coming year.
Rising corporate profits
The bottom line is the ultimate metric investors look for each quarter. After slumping for the better part of a year, the average profit for a U.S. corporation has been on the mend. Through the third quarter of 2016, average profitability has increased 14% since the fourth quarter of 2015.
Chart source: Federal Reserve Bank of St. Louis.
Not all business profits rise in tandem, though. For example, since 2014, U.S. oil and energy companies have struggled while retail-based companies have continued to experience increasing profitability. However, the average rate of increase is a positive sign for the economy as 2017 looms.
Increasing profits lead to extra cash being added to a business's coffers, possibly higher dividend payments, and ultimately higher share prices. At the end of the day, a stronger bottom line is the single most important metric for stock growth over time.
The next 12 months...
It has been another wild year for investors, and it's impossible to be sure what 2017 will hold. However, the strong numbers we see as 2016 draws to a close indicates good reason to remain bullish on stocks in 2017.
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