Has this economy peaked?

The recently dinged stock market has yet to crimp strong consumer and small-business confidence, near record-low Minnesota unemployment and wages for working stiffs that finally are registering meaningful increases.

However, nearly a decade into the longest post-WWII economic recovery, there are some concerns about staying power. Few are suggesting a market crash à la 2008-2009, or even a recession. Maybe a slowdown.

Financial services and real estate markets usually signal the future. And there’s some anecdotal and statistical evidence those markets are tiring. A few observations:

• The stock market is increasingly volatile and flat for the year. That follows a 250 percent run of the S&P 500 from March 2009 through 2017, including reinvested dividends. The 23 percent 2017 surge was spurred by anticipation of the late-year tax cut for corporations. That juiced company earnings and also led to increased levels of stock buybacks by cash-rich companies.

However, rising interest rates and concern about whether corporations can continue posting earnings increases, as well as the uncertainty about the effect of tariffs on trade has spooked some investors and fueled day-to-day spikes.

Brian Belski, chief investment strategist of New York-based BMO Capital Markets, noted last week that rising interest rates “have actually benefited stocks historically, despite conventional thinking to the contrary.”

Belski still likes a portfolio of good-performing, dividend-paying stocks in his long-term bucket. The market’s performance this year also demonstrates many investors don’t like news-driven volatility.

Jim Paulsen, the veteran economist and market strategist at Leuthold Group, was bullish until last year.

He wrote investors last week: “The underpinning of the postelection U.S. stock market has been persistently ‘better than expected’ economic growth. However, of late, cyclical stocks are collapsing relative to defensive stocks, suggesting the stock market’s primary foundation is dying!”

The market message, according to Paulsen: Economic growth is about to slow “more than expected.”

• The mergers-and-acquisition market may be flagging after several great years, including 2014-2015 record years and 10,529 deals valued at $2 trillion, according to data-tracker Dealogic.

The numbers were down nationally and in Minnesota last year, albeit still a good year.

“I’ve been concerned for about three years,” said Scott Richardson, managing director of the Minneapolis office of Houlihan Lokey, a major M&A adviser. “We are in the late innings, maybe extra innings. The music will stop at some point because it always does. The odd thing is that the underlying companies that we are selling are doing better than ever.”

Investment bank Baird said transactions in August and September dropped to levels not seen since 1996.

Jamie Snelson and Sean Kearney, who lead the M&A practice at Fredrikson & Byron, the Minneapolis law firm, said prices as a multiple for private companies are at postrecession highs. They are seeing fewer Midwest bidders and more coastal firms willing to pay higher premiums.

“The good market can’t go on forever,” Kearney said. “We’re probably at the tail end of the M&A cycle.”

The number of transactions involving at least one Minnesota firm so far this year was 96, according to Dealogic. This year could produce fewer deals than the recession years of 2008-2009 for number of transactions locally and nationally.

The supply of decent companies for sale is waning.

• Venture capital was higher in the third quarter, driven by huge, Silicon Valley-related investments. But the trend is softening after several strong years.

“VC-backed deal volume is down to a level unseen since the fourth quarter of 2012,” Tom Ciccolella, PricewaterhouseCoopers U.S. venture capital leader, said this month, adding it’s still a “healthy startup ecosystem.”

In Minnesota, venture capital was good during the first three quarters of this year at $353.7 million. That included beneficiaries such as Sentera, the ag-drone company; Foodsby, which delivers food to commercial buildings; and Urotonic, an early-stage medical device company that brought in $20 million.

However, this year promises a lot less venture money than the postrecession record 2017 of $691.3 million.

• The Twin Cities hot housing market is beginning to cool, the Star Tribune reported this month. Home sales are down from a year ago, more sellers are cutting prices and mortgage rates are climbing. Surveys last week showed 30-year rates approaching or crossing 5 percent, the highest they have been in seven years.

A slowdown is “looming,” said Aaron Terrazas, an economist at Zillow.com.

Meanwhile, the farm economy is suffering amid another year of low soybean and corn prices, compounded by the simmering trade war with China.

And local labor shortages aren’t helping rebounded Minnesota manufacturers expand their reach.

We are still in a solid Main Street economy. We are also seeing early fraying around the financial edges.

 

Staff writer Patrick Kennedy contributed to this report.

 

Neal St. Anthony has been a Star Tribune business columnist and reporter since 1984. He can be contacted at nstanthony@startribune.com.