economy

China-US trade: Deal or No Deal

The trade dispute between the two largest economies continues to deteriorate and this is not a surprise to us. It has been very clear that the current US administration is unlikely to make a deal with the China. The gap is too wide between the two countries so it is hard to envision a deal coming together. It seems to be getting worse and we don't expect a deal anytime soon. Back in our January conference call for clients, we pointed to VP Pence's speech from October 2018 at the Hudson Institute. If you want to understand the big issues, this is a must watch.

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Will Europe drag the US into recession?

European growth peaked at the end of 2017 and has been slowing ever since. Despite the ECB saying there is no recession in Europe, there is mounting evidence that Europe is entering a recession. Germany, which is often seen as the engine of the Eurozone, saw its GDP contract in the 3rd quarter and its manufacturing PMI fell below 50 in January. Italy has waived the white flag and is already in recession with the European Commission forecasting just 0.2 percent growth for 2019. The ECB just stopped its asset purchase program in December and now may have to try to stimulate again.

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Houston, We Have an Earnings Problem

We are currently in the thick of earnings season as companies are reporting their quarter ending December 31st. Expectations are for S&P 500 earnings growth of over 20% which is an extremely strong number especially considering that the previous year grew a healthy 12%. However, lapping that type of growth is going to be a challenge, and forecasts are being revised down quickly for the first half of 2019. That is why we believe there is a growing likelihood of a slight earnings recession occurring in 2019.

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Wall Street strategists bullish for 2019

This is one of my favorite posts to write every year as we get to look back on Wall Street predictions and see how they panned out. We have done this in 2014, 2015, 2016, 2017 and 2018 so it is a tradition to see which strategists did well and which missed the mark.

Last year, the strategists predicted a bull market for 2018 with an average target of +6%, 2850, for the S&P 500. Those predictions looked pretty good heading into the fourth quarter, but after a sharp decline, all of them badly missed the mark as the S&P 500 suffered through a terrible stretch and hit a year to date low of 2346 on Christmas Eve. The best of the best was Citibank's Tobias Levkovich and UBS's Ben Laidler who both predicted a slightly down year. Now let's take a look at their thoughts on 2019…

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Ballooning US debt poses huge risks ahead

Today, Blackrock's CEO Larry Fink warned investors that the US is heading towards a “supply problem” as the widening budget deficit, expected to top $1 trillion annually starting in 2019, requires more borrowing. This is an issue that investors have never seen before. Typically government spending is restrained at the end of an economic expansion; however, this administration is stepping on the accelerator with neither party emphasizing fiscal responsibility. This could pose a huge problem if a recession hits over the next couple of years.

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