Welcome to “The Week Ahead” where each Friday we take a moment to provide our thoughts on what we can expect in markets and the economy for the week ahead.

The Fourth of July always brings barbecues, parades, and fireworks. It also signals the end of the first half of the year, which is always a great time to reflect back on what’s transpired so far in 2017.

Our view for the U.S. economy in 2017 was for continued slow-to-moderate growth and no recession. So far that looks to be the case with first quarter GDP coming in at 1.4%, an increase from the second estimate of 1.2%. Good, but not great. We are constantly monitoring some of the long-term structural changes occurring in today’s economy.  Next week the auto sales report will be released and companies like General Motors have already begun to reign in expectations.  We expect auto sales, after peaking in 2016 due to easy access to car financing, to decrease over time as vehicle innovation becomes more prevalent in the form of car-sharing (Zipcar/ Car2Go) and ride-hailing (Uber/Lyft) services. One study estimates that one car-sharing vehicle can remove or suppress 7-25 privately-owned vehicles. One ride-hailing vehicle can remove or suppress 5-10 privately-owned vehicles.  Additionally,  millennials no longer want to drive themselves;  domestic driver’s license penetration has dropped by 50% versus 1978! The decrease in new cars being purchased and leased will impact insurance providers, banks/financers, real estate, energy, utilities, and business services (find me a Tesla owner that doesn’t gloat that they don’t need oil changes or smog tests!). This shift won’t occur overnight but expect it to be a headwind to GDP over time.

At our annual Economic Market Update in April, we described 2017 as the year of rotation: global deflation fears turning into global reflation, global negative interest rates turning higher, pessimism (the wall of worry) turning to optimism, and the changing of the guard from being “paid to wait/defensive” to “extracting value/cyclical”. While we haven’t seen an excessive reflationary environment, we have at least seen the worries of global deflation mitigated. Global negative interest rates in the 10-year part of the yield curve are now positive (except for Switzerland), a stark contrast to just a year ago. With emerging market equities up 18%, international developed equities up 15%, and domestic large cap equities up a little under 10%, I’d say that investors have voted with their dollars and have overcome the wall of worry. 

So eat that hot dog, enjoy the parade, get mesmerized by the fireworks show, and make sure to have that slice of apple pie.

Data deck for July 1-July 7: