From our favorite economist Ed Yardeni:

Trump’s approach risks escalating the trade skirmishes into an all-out trade war, which would depress global economic activity. Now let’s try to tune out the noise of war and find some peace and quiet:

(1) Forward earnings. Notwithstanding all of the above, Joe and I continue to focus on the strong signal coming from S&P 500/400/600 forward earnings (Fig. 1). All three rose to record highs in mid-June.

The forward earnings of the S&P 500 is up to $168.40 per share, quickly approaching our target of $170 for the end of this year (Fig. 2). Barring an all-out trade war, that level seems easily achievable, since forward earnings will equal the consensus expectation for 2019 by the end of this year. That expectation has been rising ever since the cut in the corporate tax rate at the end of last year. It was $176.94 in mid-June.

(2) Forward revenues. We guess that industry analysts haven’t gotten the trade-war memo yet. Their forward revenues estimates for the S&P 500/400/600 continued to climb to fresh record highs in mid-June (Fig. 3). The upward slope is particularly steep for both the forward revenues and forward earnings of the S&P 600 SmallCaps.

(3) Profit margins. The S&P 500 forward profit margin continues to rise in record-high territory (Fig. 4). It was 12.2% in mid-June, up from 11.1% during the December 14 week, just before Trump’s tax cut.

(4) Bottom line. Our bottom line is that while the noise continues to drown out the signal, the signal remains strong enough so that stocks have held up quite well despite the noise of war. We expect that the noise will diminish as the mid-term congressional elections approach. Trump can’t afford to lose the House, especially to Democrats aiming to impeach him. He also needs the economy to remain strong and the bull market in stocks to remain intact.

Trump never learns from his defeats because he never admits that he has been defeated or stalemated. Instead, he pretends he has won and moves on (“Won-and-On Don”). He may very well do the same with the Chinese, accepting their initial concessions—as noted above—and moving on. He did that with North Korea, which remains a nuclear power despite Trump’s summit with NoKo dictator Kim Jong-un. But Little Rocket Man hasn’t launched a missile since late last year.”


It’s Fed Day Today

by Marilou Moursund on June 13, 2018 in Economic Indicators

It is widely expected that the Federal Reserve will raise rates by a quarter of a percent today.  From the linked Wall Street Journal article: It’s possible that continued strong hiring in the U.S., which pushed down the unemployment rate to 3.8% in May, leads at least one official to move up from three to four […]

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A Primer on the Political Turmoil in Italy

by Marilou Moursund on May 30, 2018 in currencies

It wouldn’t be summer without political turmoil in Europe.  The Dow fell 400 points yesterday on concerns about Italian debt after the Italian president blocked a coalition government from forming.  The New York Times has a good article explaining what is going on in Italy.  From the linked article: The two parties that won the […]

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Recession – Not in the Foreseeable Future

by Laura Ehrenberg-Chesler on May 23, 2018 in Earnings

From Economist Ed Yardeni today: “Since we don’t see a recession in the foreseeable future, we continue to focus on the forward P/E, which isn’t alarmingly high, in our opinion. The further out that a recession is perceived as likely to happen, the more sustainable are above-average P/Es. That’s because long expansions give investors the […]

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Rising Rates Create Tighter Financial Conditions

by Laura Ehrenberg-Chesler on May 17, 2018 in Fed policy

From the WSJ today: “The yield on the 10-year Treasury note climbed to 3.082% on Tuesday, breaking above a 2014 peak to settle at its highest level since 2011. The rise in that benchmark stands to lift borrowing costs for everyone from consumers to corporations. Meanwhile, the WSJ Dollar Index, a measure of the U.S. […]

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Share Buybacks Steady Market

by Laura Ehrenberg-Chesler on May 10, 2018 in Earnings

The new tax code overhaul, signed into law in late 2017, has encouraged companies to repatriate over $2 trillion in overseas cash. Some of that cash has gone into research and development as well as capital equipment purchases. But, a lot of that cash has gone into share repurchases. These buybacks have helped to steady […]

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Public Pension Plans Present Problems

by Marilou Moursund on May 8, 2018 in politics

As we see over and over, governments don’t have to follow the same rules as the private sector.  Public pension plans are very underfunded according to this Wall Street Journal article titled “Pension Funds Still Making Promises They Probably Can’t Keep”.  From the linked article: But government officials seeking to make their investment targets more […]

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The IMF’s World Economic Outlook April 2018

by Marilou Moursund on April 19, 2018 in Economic Indicators

The International Monetary Fund (IMF) published their economic outlook today, and the main conclusion is that the global upswing that began in mid-2016 has become broader and stronger.  From the linked report: World growth strengthened in 2017 to 3.8 percent, with a notable rebound in global trade. It was driven by an investment recovery in […]

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Ed Yardeni on Tariffs and Blockchain

by Marilou Moursund on March 15, 2018 in currencies

We have all heard about the wild ascent and subsequent fall in the price of Bitcoin, and shortening cryp tocurrency to crypto in your conversation is a sure fire way to sound cool.  However, the underlying technology driving Bitcoin, called blockchain, has many theoretical uses.  From Yardeni Research’s Morning Briefing today: 1) Blockchain basics. We’ve […]

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The Anniversary of the 2009 Market Low

by Laura Ehrenberg-Chesler on March 6, 2018 in capitalism

March 6, 2009 was the market low during the era if the financial crisis. Intra-day, the S&P 500 dipped to 666. Some of the headlines from that period were as follows” “Market’s 7-day rout leaves U.S. reeling” “Worst Week Ever for Stocks” “Mounting Fears Shake World Markets” “FORCLOSURES” “The Week That Changed American Capitalism” We […]

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