Business capital expenditures (capex) have grown solidly over the past two years after an oil-related contraction in 2015 and 2016. Part of the turnaround has been a natural rebound from those two years of slowdown, but fiscal stimulus is also playing an increasingly important role. Tax and spending packages passed in late 2017 and early 2018 have provided the economy with a $350 billion windfall that has helped raise business confidence and boost firms’ earnings, leading them to focus more on investing in their businesses for future growth.
Corporate America produced another outstanding earnings season. We expected another quarter of strong earnings growth, and corporate America delivered even more than we anticipated. Third quarter numbers were excellent, even if the boost from the new tax law is excluded, as has been the case throughout this year. Revenue and earnings upside compared with expectations was particularly impressive, making prior assertions of an earnings growth peak premature. We’re also impressed by the resilience of companies’ outlooks in the face of tariffs and ongoing trade policy uncertainty.
Overall, economic reports released in September— mostly reflecting economic activity in August— indicated solid U.S. economic growth without significant inflationary pressures, though wage gains bear monitoring. The Conference Board’s Leading Economic Index (LEI), an aggregate of 10 leading indicators, increased 0.4% in August and 6.4% year over year, signaling low odds of recession in the coming year.
The Portfolio Compass provides a snapshot of LPL Financial Research’s views on equity, equity sectors, fixed income, and alternative asset classes. This monthly publication illustrates our current views and will change as needed over a 3- to 12-month time horizon. Read recent issue...
For the second half of 2018, continued economic growth and market gains may bring the heightened drama of increased volatility. So while there may be some twists and turns ahead at LPL Research we expect the positive fundamentals may prevail.
An important shift has taken place in this economic cycle. The Federal Reserve (Fed) was finally able to start following through on its projected rate hike path, raising rates twice in just over a three-month period. By doing so, the Fed showed increasing trust that the economy has largely met its dual mandate of 2% inflation and full employment, that the economy is progressively able to stand on its own two feet, and that fiscal policy may now provide the backstop to the economy that monetary policy has provided throughout the expansion.
Stock markets, bond markets, the economy, policy — some years they push and pull on each other lightly as markets follow their own path; in others, one influence, such as monetary policy, dominates. But sometimes, often following a period of change, understanding the pushes and pulls and how they interact becomes a key to reassessing market dynamics for the next year and beyond.
During any presidential election, you can expect a barrage of promises from the yard sign endorsements, bumper stickers, stump speeches, and media headlines. All pledge to improve the economy, provide better education for all, and preserve the environment.
The Economic Cycle - We believe we are in the mid-to-late stage of the current expansion, but we are still seeing some early cycle and late cycle behavior. Extended loose monetary policy, inflation, and employment growth are still exhibiting early cycle behavior, while some items relating to corporate profits are showing late cycle behavior, although they may be reset if profits improve.