Hurricane economics, Et. Al.
Eugene Yashin

US Economics

The economy in the second half of this year may slow down a little. The impact of two powerful hurricanes is yet to be fully assessed. A pause in retail sales and declining industrial production could also contribute to a slower growth in comparison with the first six months. However, usually after hurricanes come and go, rebuilding should contribute to a bump in GDP going forward for several quarters ahead of us.

Hurricane Economics: How Big is the Impact? Per recent study from Goldman Sachs (US Economics Analyst, September 9, 2017) major natural disasters typically lead to a temporary slowdown in most major growth indicators. Such events are often associated with particularly large declines in economic activity, but also sharper subsequent rebounds. Modeling these effects, Goldman estimates that hurricane-related disruptions could reduce 3Q GDP growth by as much as 1 percentage point (making it a 2% growth quarter). The main channels for these GDP effects are consumption, inventories, housing, and the energy sector. However, Goldman believes this weakness should be reversed over the subsequent three quarters, more than recouping the lost output.

Global Economy

Since the mid 2016 the global GDP has delivered consistent above-trend outcomes and upside surprises. Inflation also has risen though still at a subdued pace. The global economy seems to be entering a traditional business cycle upturn as broader growth lifts private sector confidence and asset prices. As recently has been the case, China could be a headwind to a continuous above trend growth, but the major central banks’ commitment towards supporting the recent expansion should be enough to overcome occasional hiccups.

Tax Plan

The White House and Congressional leaders released a tax reform plan, which was largely in-line with expectations. The blueprint, which lacks details at this point, calls for lower corporate tax rates and fewer income tax rates for individuals. The prospect of reform helped fuel a rally in equity markets to close September. Equities gained, led by smaller caps, Energy, and Financials. However, there are many political obstacles to the plan, and the range of opinions on the odds of success is quite wide among analysts, the media, and investors. We will continue to carefully assess the tax package and the potential impact on longer-term market returns.

Equities with Sales Growth

Our investable universe P/E multiple based on the next 12-month earnings growth consensus stands at 18. This is an elevated but not excessive median valuation of the 3,200 companies that we track. According to Goldman Sachs, the S&P 500 currently trades at 18.0x their top-down 2018 EPS forecast of $139 and 17.2x bottom-up consensus of $146. Absent support from improving margins or P/E multiple expansion, equity returns are likely to be dependent on sales growth. It is hard to expect US or World GDP growth, Inflation, US Dollar and Crude Oil dynamics to spark a broad market acceleration in sales growth. However, in our portfolios, we can focus companies with reasonable multiples and above market average sales growth forecasts. Passage of tax reform represents an upside potential to margin and EPS forecasts as well, and we favor companies which could benefit from any form of corporate tax reform.

Bond Yields vs. Equity P/E Multiples

While some market participants believe that rising bond yields will have an adverse impact on equity multiples, hurting stocks, we side with the glass half full camp in that regard. Although equity valuations are at a premium to historical levels, we believe that bond yields can rise without hurting stocks for some time. According to JP Morgan, in the past 10 years, during sharp spikes in bond yields of 50bp or more over one month, the S&P500 was up 90% of the time. Their relative value models between stocks and bonds suggest yields could move up significantly before stocks become expensive. Also, bond yields are moving up for the right reasons. Eurozone manufacturing PMIs just made new cycle highs. Global PMIs remain robust. Q3 EPS delivery could also become a positive catalyst. Also, the price of oil is up 20% over the past three months, a very good sign for inflation to firm-up into year-end. Oil price is typically correlated to S&P500 sales growth.

The information and opinions included in this document are for background purposes only, are not intended to be full or complete, and should not be viewed as an indication of future results. The information sources used in this letter are: Jeremy Siegel, PhD (Jeremysiegel.com), Goldman Sachs, JP Morgan, Empirical Research Partners, Value Line, Ned Davis Research, Citi research and Nuveen.  

You might also like
December 30, 2021
Heading into the new year, look back on the positives and negatives for investors in 2021. Check out the highlights from Goldman Sachs, J.P. Morgan, and Siegel.
Read more
December 2, 2021
Interest rate uncertainty and Omicron implications unnerve the markets, while a strong economy and earnings support the existing sentiment.
Read more
November 1, 2021
The market has been very volatile recently. In between higher earnings expectations and concerns about a possible market correction, what investors should do?
Read more
October 4, 2021
Delta fear factor, inflation concerns, the Fed’s tapering make investors rely on mega-cap growers, but the projections from the broader market stay positive.
Read more
September 1, 2021
Employment, industrial production, and factory usage are strengthening. Yet the Delta variant's impact on growth and inflation could be larger than expected.
Read more
August 2, 2021
Despite the growth bounce there're concerns around the Delta wave impacting the market and Tech serves as a safety resort against potentially slower economy.
Read more
gains in exports
June 28, 2021
GDP is on target to grow above 6% with gains in exports, a decline in jobless filings, a rebound in consumer sentiment, and rising industrial production.
Read more
June 1, 2021
Declines in jobless filings, stability in retail sales, gains in production. How does the US economy recovery affect stock market and portfolio management?
Read more
May 3, 2021
Amid earnings season, a critical question now is whether the entirety of the economic recovery has already been discounted in the stock and bond markets.
Read more
April 1, 2021
With economic growth projections and huge liquidity we expect inflation to kick in. Read how we adjust our postures to address the changing environment.
Read more
vaccines support markets
March 1, 2021
The vaccination results suggest efficacy of conventional public health measures. Read how great news on vaccines supports markets and limits downside risk.
Read more
healthcare sector going forward
February 1, 2021
Eugene Yashin highlights the strong performance of smaller stocks, value stocks and indicates sector opportunities for investors with a long-term perspective.
Read more
January 1, 2021
Eugene Yashin on how the $900bn COVID relief package combined with the Fed commitment to long-run monetary policy should support the markets going forward.
Read more
December 1, 2020
Stocks hit record highs on growing evidence of effective vaccines emergence. Eugene Yashin reviews global and US economics, stock market and portfolio changes.
Read more
November 1, 2020
On the eve of elections, Eugene reminds investors of a key lesson from 2016: avoid making big bets that rely on one particular outcome to perform well.
Read more
October 1, 2020
Stock markets have cooled off recently and the economy provides stability. The volatility is creating pockets of opportunity for long-term investors.
Read more
September 1, 2020
COVID infections spread however on the third quarter economic front, surveys result as positive. New weekly jobless filings and ongoing claims remain high.
Read more
July 31, 2020
US economy improves with strength in retail spending, industrial output, and housing. COVID infections cause unemployment, high jobless filings remain.
Read more
June 29, 2020
In Q2 2020 US equities staged a remarkable recovery from the Q1 decline rewarding investors who were able to stay invested. More in Signet's market overview.
Read more
June 1, 2020
In Q2 of 2020, US equities staged a remarkable recovery coming from the Q1 decline by rewarding those investors who were able to stay invested.
Read more
May 1, 2020
April was the best month for stock markets since 1987. What are the implications for investors? Read our latest update on the economy and financial markets. 
Read more
April 1, 2020
While the markets are dominated by fear, we do not succumb to hysteria. We act with cool heads when we rebalance and compassionate hearts when we speak to you.
Read more
March 1, 2020
Coronavirus places a brake on economic growth, however studied predictions comprise of resilient recovery in global growth rates around midyear time frame.
Read more
February 1, 2020
Coronavirus concerns hit markets, Steve Tuttle reviews why fears may be overblown, and could lead to opportunity to enhance returns for long-term investors.
Read more
February 1, 2020
US economy holds a healthy stance with decline in jobless claims and increases in housing start. Stock market performances exceed expectations.
Read more
January 1, 2020
US economy finishes strong as 2019 ends with record high stock markets. Political uncertainties diminish worldwide leading confident global growth in 2020.
Read more
December 1, 2019
Read several reasons why the US economy is expected to accelerate in 2020 as well as corporate earnings. Global GDP growth continues at a sub-par slow pace.
Read more
November 1, 2019
Our Chief Investment Officer, Eugene Yashin, examines major themes in global markets including regime change that is encouraging for value investors.
Read more
October 1, 2019
Post summer spending causes plateau in sales. Read up on key notes from the Federal Reserve’s policy meeting and why global expansion is stuck.
Read more
September 1, 2019
Rise in trade war with further tariffs from China followed by further counter measures and additional tariffs from President Trump weakens equity markets.
Read more
August 1, 2019
Stock investors benefit from low yield environment. Eugene offers thoughts on the economy, earnings, and interest rates, and how it all affects investors.
Read more
July 1, 2019
Is stock market really complacent? Eugene Yashin reviews the economy and markets, including a range of long-term opportunities for investors.
Read more
June 1, 2019
Stocks faced a tough May. Despite ongoing worries about the pace of global growth and the US/China trade dispute, fundamentals are still supportive.
Read more
May 14, 2019
After 2019’s strong start, stock markets stepped back as trade tensions between the US and China escalated. Investors are encouraged to expect volatility.
Read more
May 1, 2019
Markets indicate major improvement from Q4 of 2018 along with stronger-than-expected activity readings raising the global GDP growth estimates.
Read more
April 1, 2019
The nation’s economic locomotive slowed down in the first quarter. Growth in employment, industrial production and business fixed investment hardly advance.
Read more
March 1, 2019
Chief Investment Officer, Eugene Yashin’s latest market review features the rebound in fundamentally sound stocks and areas of opportunity for investors.
Read more
February 1, 2019
Despite historical government shutdown, our economy is forecasted to show resilience with consumer and industrial markets upholding strength for GDP upturn.
Read more
January 1, 2019
What lies ahead for the economy, markets, and investment strategies? Eugene highlights factors that drove markets in 2018 and may impact investors’ tactics.
Read more
December 1, 2018
Markets receive a boost from Fed comments and make progress on trade talks with China. Eugene evaluates key themes and data that could influence markets.
Read more
November 1, 2018
Updates concerning investment backdrop, GDP growth, higher inflation, advancing interest rates and yields on 10-year Treasury notes hitting seven-year high.
Read more
October 1, 2018
Economic growth looks healthy and we have a positive view towards financial markets finding investment opportunities in solid businesses that are mispriced.
Read more
September 1, 2018
The economy and earnings still look great. Eugene Yashin provides reasons on how this bull market still has legs with its strong advances in Q2 of 2018.
Read more
Graph
August 1, 2018
Signet financial experts see light in US and global economy with factors such as GDP growth, healthy sales, industrial production upturn and factory use.
Read more
July 1, 2018
Halfway through the year, markets digest trade tensions, market volatility, Fed policy, politics, and strong earnings. Read Signet’s forecasts for 2018.
Read more
June 1, 2018
Volatility sets concern on geopolitical tensions, trade conflicts, inflation, and politics as domestic, global environment and corporate health look supportive.
Read more
May 1, 2018
Forecasting economic and earnings growth to remain solid. Corporate earnings results are at their best levels in years while stock prices struggle to rise.
Read more
April 1, 2018
Volatility is back and judging by our macro forecast, it may be with us for some time. Volatility is not bad, but it can provoke behavioral mistakes.
Read more
pull back picture
March 2, 2018
Markets are not reacting well to President Trump’s plans to announce tariffs on steel and aluminum imports. What is to come for the investment environment?
Read more
March 1, 2018
Volatility returns in February, as we saw a stock market correction and impressive rebound within weeks. Read what to expect if volatility levels continue.
Read more
February 6, 2018
Steve Tuttle responds to the recent market volatility and answers some timely questions: Why are markets selling-off? Is this end of the bull market?
Read more
February 1, 2018
A strong labor market coupled with accelerating wages and personal income tax reform lead us to believe consumption will remain strong in the near future.
Read more
January 1, 2018
With global growth set to continue and employment outlook showing improvements, we are optimistic about the new year. Read Signet’s projections for 2018.
Read more
December 1, 2017
2017 has been a good year for the U.S. economy, and we believe the bull market can continue in 2018. Read Signet’s expectations for financial standings.
Read more
November 2, 2017
Despite hurricanes impacting many communities, the best year showing retail spending surges, welcoming recovery. The global economy tapers down, for now.
Read more
September 13, 2017
Signet's quantitative assessment shows stocks that blend growth and value characteristics are well positioned for the late phase of economic expansion.
Read more
September 12, 2017
Read Signet's overview of performance trends and risks among sectors as well as opportunities for investors for healthy earnings growth on a global scale.
Read more
August 15, 2017
We believe the global economy is strong in foreign markets and is helping foreign currencies against the US dollar. The US economy shows loss in momentum.
Read more
gains in exports
July 3, 2017
The US economy strengthens. Unemployment is low, inflation is tame, long-term interest rates are near their low-point, and US equities show positive results.
Read more
April 3, 2017
The first quarter of 2017 was dominated by political headlines and firming economic data. Stocks have generally rallied on better global growth.
Read more
March 1, 2017
The US economy is off to a good start in 2017. Manufacturing, non-manufacturing, employment, and consumer spending data are holding up well.
Read more
February 1, 2017
The global economy continues along a low-growth path, and there are a number of bright spots. US companies report the strongest profit growth in 2 years.
Read more