For the last ten years investors have fared quite well due in part to steady economic growth and a surge in corporate profits. In fact the two previously mentioned indexes are up 300% since March 2009. Now that this bull market is approaching its ten year anniversary some are wondering how much longer the surge could last. According to the article earnings are expected to slow partly due to the fading effect of corporate tax cuts. Cause for concern can also be derived from economic weakness in Italy and Germany, along with the worries that come from Brexit and the slowing growth of China. These factors could certainly harm the earnings of huge multinational corporations.The article also notes that even though the Fed has already signaled it will probably not raise interest rates this year, the US economy may start to slow due to the lag of prior rate hikes. Randy Swan, the CEO of Swan Global Investments believes that the Fed's previous rate hikes may have already been enough to cause a slow in the economy and markets.
It will be interesting to see if these signs are signaling that the economy will slow or even contract in growth soon. Do you think signals the article mentions are indicators of a slowing economy, or are their even other metrics that you prefer to keep an eye on?
Source: https://www.cnn.com/2019/03/03/investing/stocks-week-ahead-bull-market/index.html
2 comments:
I think that the fading effects of the corporate tax cuts are going to be felt soon. I think that the corporate tax cuts were a last ditch effort to boost the economy and prolong a tiring economic cycle. One of the problems with capitalism is pushing a boom cycle too far and overstepping sustainable growth. The TCJA has already proven it will add even more debt to the overall deficit so the minor advantages that were added to the economy were very short lived. Europe in general is going through an interesting time period for their economic cycles as well. There seems to be a lot of accumulating problems all around that world that could compound and make a world recession happen fairly soon. One additional metric I would also keep an eye on would be the overvaluation of stocks. There was a massive pull back at the end of 2018 and along with rising tensions in world economies I believe the stock market could be very turbulent in 2019. Consumers still remain optimistic but once one domino falls a self fulfilling prophecy could arise shaking consumer confidence.
Will and Jake, you make some very interesting points. I think the US is indeed due for a correction. We've had too strong of growth over the past few years, and it gets increasingly harder to beat growth expectations and forecasts YOY. In 2008, obviously, the housing market was a large catalyst for the recession, however, what do you think is a main driver for the upcoming correction, if there even is one? Could it be a 'debt crisis', due to the amount of national debt that we have accumulated, and even student loan debt too. Lastly, when the correction hits, do you think it will be as brutal as before? Maybe a slight pullback? Maybe more?
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