It’s been 10 years since the start of the Great Recession which officially started Dec 2007 and lasted until June 2009, and was to-date the deepest and longest recession since the Great Depression, hence the comparative name. But in all these past years as the planets shift above, the world below seems to have aligned economically to make M&A and all of finance an active place to engage and growth with.
Since President Trump’s election in November 2016 his desire to reset our economy on his terms has been on a frantic pace. And whether or not we find this president’s style a bit heteromorphic has little to do with the reality behind the raging bull’s impact in the 18 months since the election. “It’s Trumponomics silly.”
- Lower Tax rates: corporate and personal income taxes are down. This fiscal stimulus is just getting started and includes among other things the repatriation of nearly 2-Trillion in funds held offshore being brought home by big corporations. The 2017 Tax Cuts and Jobs Act should continue to boost 2018 M&A activity for several months.
- Unemployment: rates are at a 30-year low. Yes. If you want a job they are aplenty these days. And while this will increase the cost of labor for business, the flip side is more spending in an economy where 70% of GDP is driven by consumer spending and that’s great for all businesses.
- Stock Market: stocks have seen a monumental increase in the last 18 months. The DOW for example was 18,332 on election day November 8th 2016. By April 13th 2018 the DOW topped 24,360, a 32% increase in 6 months. If it holds up (so far so good) it will mean that we haven”t seen a move that big in a long while.
- CEO Confidence is way up. According the NFIB, CEO confidence racked up another record. Here’s the official quote: “The small business optimism index reached its 16th consecutive month in the top five percent of 45 years of survey readings, according to the NFIB Small Business Economic Trends survey… The 104.7 March reading, down from 107.6 in February, remains among the highest in survey history.”
- Consumer Confidence: hits an 18 year high in February 2018. Consumers do feel wealthier as the impact of lower payroll taxes kicks in and 401k balances rise.
These are but a few of the good times in 2018 thus far, making this year a super hot market for M&A. But how long will it last? Critics and pundits, economists and stock-market traders all agree: there’s something about 2018, and smart people will recognize this unique time as a golden opportunity to make the most of it: Which begs the next question…
What could cause a downturn from such great heights?
The list of prospective issues that could become headwinds later in 2018 and into 2019 is long, but keep your eye on these 4 keys indicators for hints:
- Trade wars: President Trump is pushing back on perennial trade rule violators like China and is willing to take a short-term trade hit for a long term gain says the White House. That is tough language for M&A.
- Recession: It’s long over-due. As the 2018 U.S. Bull-market economic expansion period (now in it’s 9th year) has become the longest Bull-market run since World War II.
- Interest Rates: Finally the 10-year benchmark treasury ( a key driver of consumer loan rates from credit cards to home mortgages is on the rise as the Fed expects to slowly raise rates each quarter this year. This means that lenders (Banks) will in-turn increase loan rates for consumers and small businesses nationwide.
- Inflation: With a super tight historically low unemployment rate (4.3%) the US economy will soon face a deepening labor shortage, and this time the tech/robot replacement trend may not be able to keep up. This will bid up the cost of wages. Moreover, as the general demand for goods increases with higher wages and consumer spending, prices for commodities, food, and housing will also trend higher under these macro demand pressures.
So far, however, none of these nor a dozen other indicators have yet to show real material signs of caution, and while pundits will argue of choppy waters ahead, they also say that the 2018 global economy has a strong chance to outperform across the board and into 2019.
What should you do now?
In summary, if the headline Tweets are keeping you on the fence about what to do in 2018, don’t panic, you’re not alone. But, at the same time don’t just stand there with your hands behind your back waiting for something to happen to you. There’s something about 2018 that is presenting to you a once in a long time opportunity to use the increasing value of your business to grab market share and dominate. Take a close look at your industry and you will see big-fish M&A happening all around you. And that may be perfectly fine. But remember, at some point all the little fish get eaten.