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Dr. Ed Yardeni

Dr. Ed Yardeni

Dr. Ed Yardeni is the President and Chief Investment Strategist of Yardeni Research, Inc., a provider of independent investment strategy and economics research for institutional investors. In this blog, we highlight some of the more interesting relationships and developments that should be of interest to investors. Our premium research service is designed for institutional investors.

Articles by Dr. Ed Yardeni

Don’t Fight T-Fed

17 days ago

The Fed I: Birth of T-Fed. What a difference a pandemic makes. Prior to the Great Virus Crisis (GVC), Fed officials were either dismissive of Modern Monetary Theory (MMT) or remained silent on the subject since it crosses into the realm of fiscal policy. Fed officials have had a very long tradition of never crossing that line. They do monetary policy. Congress and the White House do fiscal policy. Period! Nothing to see here. Move on.
Since the GVC, Fed officials repeatedly and frantically have been exhorting the fiscal authorities to do much more to support the economy. They’ve made it very clear that they will continue to help finance the resulting federal deficits by purchasing most, if not all, of the Treasury debt issued to pay for more fiscal stimulus. They’ve certainly been doing

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Tale of Two Economies: Housing-Related Boom vs Pandemic-Challenged-Services Bust

22 days ago

“E pluribus unum” certainly doesn’t apply to our highly partisan political discourse these days. The phrase is Latin for “Out of many, one.” It is a traditional motto of the US, appearing on the Great Seal. Its inclusion on the seal was approved by an Act of Congress in 1782. Another motto is “Novus ordo seclorum,” which is Latin for "New order of the ages.” That doesn’t seem to apply these days either given our political and social disorder.
Then again, we all seem to be united when it comes to shopping. While the country remains bitterly divided politically, we are united in our drive to thrive. That certainly helps to explain the remarkable economic recovery in recent months from the two-month lockdown recession during March and April.
American consumers almost never disappoint us. I

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The Glass Is More Than Half Full

September 24, 2020

We didn’t know how good we had it in 2019. Then the pandemic hit in 2020, and we all concluded that it will take many years before life will be as good as it was in 2019. Perhaps we’re too pessimistic. After all, 2019 was better than we realized at the time; perhaps we’ll return to the good life sooner than we realize now. Let’s examine that notion, starting with how good it was in 2019, then considering how we might rebound to the good old days sooner than widely anticipated:
(1) Household income rose to record high in 2019. My attitude toward any data series that doesn’t support my story is that either it is flawed or it will be revised to support my story. That’s been my strongly held attitude toward median real household income, the annual series compiled by the Census Bureau and

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What In the World Is Going On? A Recovery from the Global Lockdown Recession Is Underway.

September 21, 2020

There has never been a recession like the one that hit the global economy earlier this year. It was truly global because every country in the world experienced an economic downturn as almost all governments around the world responded to the pandemic by imposing lockdown restrictions to slow the spread of the virus. China (in late January) and Italy (in early March) did so before the World Health Organization (WHO) officially declared the pandemic on March 11. Almost everyone else followed suit immediately after the WHO declaration. While the pandemic continues to plague the world with new outbreaks and waves of infection, the global economy has recovered in recent months. Let’s take a world tour to assess the strength and sustainability of the recovery:(1) Global PMIs and leading

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The Future Is Coming: The Technology Revolution of the Roaring 2020s

September 2, 2020

In my August 12 newsletter, I discussed the technological innovations that drove the prosperity of the 1920s. Then I discussed the ones that are likely to do the same during the current decade:
“The awesome range of futuristic ‘BRAIN’ technological innovations includes biotechnology, robotics and automation, artificial intelligence, and nanotechnology. There are also significant innovations underway in 3-D manufacturing, electric vehicles [EVs], battery storage, blockchain, and quantum computing.”
In my 2018 book, Predicting the Markets, I observed:
“In the past, technology disrupted animal and manual labor. It sped up activities that were too slow when done by horses, such as pulling a plow or a stagecoach. It automated activities that required lots of workers. Assembly lines required

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Another Roaring Twenties May Be Ahead

August 12, 2020

We seem to be living in unprecedented times. We always seem to be living in unprecedented times, according to conventional wisdom, mostly because we don’t spend enough time studying history. There’s certainly a precedent for our current times in the past, one that was truly unprecedented back then.
World War I was followed by the Spanish Flu pandemic of 1918, which infected an estimated 500 million people and killed as many as 50 million. Given that the world population was 1.8 billion back then, that implied a 28% infection rate and nearly a 3% death rate. Both stats are currently significantly lower for the COVID-19 pandemic. Today, the global population is 7.5 billion. There have been 20 million cases and 735,000 deaths worldwide as of yesterday.
The good news is that the bad news

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May the Bond Vigilantes Rest in Peace

August 7, 2020

Bonds I: Eulogy. Let me begin my eulogy for the Bond Vigilantes with apologies to William Shakespeare. The emotional eulogy for Julius Caesar that Shakespeare penned for the character Marc Antony in his play Julius Caesar inspired the words that I would like to share with you on this solemn occasion:
Friends, countrymen, citizens of the world, lend me your ears. I come to bury the Bond Vigilantes, not to praise them. The noble Fed killed its rival, the Bond Vigilantes, because they were too ambitious. If it were so, it was a grievous fault. The Bond Vigilantes sought to marshal market forces to counter the ever-growing power of the government. That cause is noble and good. But while the evil that men do lives after them, the good is oft interred with their bones—so let it be with the

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Welcome to Oz, Where MMT Enables the Government to Get Bigger!

July 31, 2020

We live in surreal times. I’ve previously compared them to the TV series
The Twilight Zone. However, a more apt comparison would be with the
land that Dorothy and her dog Toto visited in the movie "The Wizard of Oz." When a tornado ripped her house from its foundation,
causing it to crash-land in Oz, she emerged safe and sound, looked around in
wonder, and famously marveled, “Toto, I’ve a feeling we’re not in Kansas
anymore.” Oz had a colorful cast of characters, including assorted Munchkins,
the Good Witch of the North, the Bad Witch of the West and her Winkie Guards,
and a blustery wizard—not unlike Washington today. And the news these days
showcases plenty of national and local leaders behaving like cowardly lions,
heartless tin men, and brainless straw men.

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More Declarations of War Signal US-China Cold War Heating Up

July 25, 2020

China’s mercantilist trade war against the US effectively started when China joined the World Trade Organization (WTO) on December 11, 2001. The US supported China’s admission to the WTO, expecting that China would abide by the organization’s rules, which mostly promoted free trade among its 144 member nations back then. (There are 164 members currently.) Instead, the Chinese abused their membership by pursuing mercantilist trade policies. They persistently and systematically violated the organization’s trade rules by using their WTO status to unfair advantage.
However, US officials didn’t publicly acknowledge that the US had been duped until Donald Trump became president. During the presidential election campaign, Trump often promised to take effective measures to correct America’s huge

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Fiscal & Monetary Policies Inflating Bubbles While Fighting Virus

July 22, 2020

Asset prices around the world are melting up. It isn’t just stock prices that are soaring. It’s also the prices of inflation-protected bonds. Precious metals prices are moving higher too. Home values are appreciating as well. Some of these bullish trends may be driven by expectations that the billions of dollars being spent on a vaccine will pay off. Undoubtedly, the main reason for the widespread bull markets in assets is the fact that governments around the world are spending and printing trillions of dollars, euros, yen, and yuan to offset the economic shock from the Great Virus Crisis (GVC). Consider the following:
(1) Vaccines. Typically, it takes roughly a decade for a new vaccine to go through the various stages of development and testing. However, the urgency of the pandemic,

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Best Friends Forever: Powell, Mnuchin, & Stock Investors

July 15, 2020

What’s been driving the stock market meltup since March 23? First and foremost, of course, is the Fed’s shock-and-awe monetary policy response to the Great Virus Crisis (GVC). It has been shockingly awesome! So has been the fiscal policy response. Never before has so much monetary and fiscal stimulus been provided in such a short period of time in response to an economic and financial crisis. It’s actually much more than the virus-challenged economy can absorb, which explains why stock prices are soaring. Consider the following:
(1) The Fed is our friend. Technicians like to say “Let the trend be your friend.” I agree; but from a fundamental perspective, my mantra has long been “Don’t fight the Fed.” Indeed, that’s the main theme of my recently published book, Fed Watching for Fun &

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The Magnificent Six Stocks That Are Gobbling Up Market Share

July 11, 2020

The S&P 500 stock price index includes 500 companies. On Friday, five of the six so-called FAANGM stocks (all but Netflix) occupied the top spots as the largest S&P 500 companies by market capitalization. They were: Apple ($1,578 billion), Microsoft ($1,564 billion), Amazon ($1,442 billion), Alphabet ($1,002 billion), and Facebook ($665 billion). Netflix ($210 billion) was the 20th largest company in the S&P 500. Collectively, their record-high $6.5 trillion market cap accounted for a record 25% of the S&P 500’s market cap on July 3 (Fig. 1 and Fig. 2). That’s up from around 8% during 2013.
The Magnificent Six are widely referred to by their awkward “FAANGM” acronym. “MAGFAN” would be easier to pronounce. In any event, count us among the fans of these mega-cap companies, though they

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Powell’s Potent Put Powering Stock Market Meltup

June 19, 2020

From meltdown to meltup. The Greenspan Put, the Bernanke Put, and the Yellen Put all resulted from actions taken by the Fed under those three Fed chairs to give stock prices a boost when they seemed to need it to avert a meltdown. The Powell Put saved the day in late 2018 when the Fed chair started to pivot away from raising the federal funds rate in 2019 to actually lowering it three times instead. The S&P 500 soared 44.0% from December 24, 2018 to a record high on February 19, 2020.
On March 11, the World Health Organization declared that the COVID-19 outbreak had turned into a global pandemic. The pandemic of fear spread just as rapidly in the US capital markets, especially in the bond markets, which seized up as credit-quality yield spreads soared.
On Sunday, March 15, the Fed

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MAMU: The Mother of All Meltups

June 11, 2020

As of Friday June 5, the S&P 500 was up 42.8% since March 23. This 52-day meltup is historic. It is the best since bigger gains were recorded during August-September 1932 (up as much as 109.2%) and May-June 1933 (up as much as 73.2%).
The meltup started the day after March 23, when the Federal Reserve announced QE4Ever and started carpet-bombing the financial markets and the economy with B-52s full of cash (Fig. 1). Since then, the Fed’s balance sheet rose by $2.5 trillion to a record $7.1 trillion during the June 3 week (Fig. 2). Its holdings of Treasury securities increased $1.6 trillion over the same period to a record $4.1 trillion (Fig. 3).
The Fed actually started its bombing campaign on March 15, when it announced $700 billion of QE4 purchases of US Treasuries and mortgage-backed

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Economic Alphabet Soup: V, U, Z, W, L or Swoosh?

June 4, 2020

Will the economic recovery be shaped like a V, U, W, L, or Z? Cases can be made for all of these possibilities. There are other possible shapes to the recovery such as a square root sign, and even a “swoosh,” like Nike’s logo. Schematic diagrams of these alternatives can be seen in a May 11 WSJ article titled “Why the Economic Recovery Will Be More of a ‘Swoosh’ Than V-Shaped.”
In the past, economic recoveries from most recessions tended to be V-shaped. The experience of the Great Depression suggests that recoveries after such a severe downturn should be shaped more like an L or W. The recovery following the Great Recession of 2008 was widely perceived to be U-shaped.
The article cited above observed: “Until recently, many policy makers and corporate executives were hoping for a

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US Declaration of (Cold) War

May 29, 2020

Coauthored with Jackie Doherty, the senior contributing editor at Yardeni Research, Inc.
The major US equity market indexes continued to rebound, with the Dow Jones Industrial Average crossing back above the 25,000 marker on Wednesday, fueled by the slow reopening of the US economy in the wake of the COVID-19 shutdown. The S&P 500 is now up 35.7% from its March 23 low and is down only 10.3% from its February 19 high (Fig. 1). Investor confidence in the improving economic outlook helped some of the most cyclical sectors outperform on Wednesday, with the S&P 500 Financials up 4.3% and S&P 500 Industrials up 3.3% (Fig. 2). They both clearly outperformed the 1.5% increase in the S&P 500 yesterday.
The Fed’s ultra-easy monetary policies continue to stimulate rebalancing out of bonds and into

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Stock Market Keeping Score in the Three-Front War Against the Virus

May 14, 2020

We are still in the midst of VWW-II, the second world war against the coronavirus. VWW-I occurred from 1918-19 as the world battled the Spanish Flu pandemic. It is estimated that about 500 million people, or one-third of the world’s population, became infected with the Spanish Flu virus. The number of deaths is estimated at 50 million worldwide, with about 675,000 in the US. In some ways, the damage from VWW-I exceeded the destruction resulting from WW-I.
So far during VWW-II, 4.1 million people have been infected globally and more than 283,000 have died. Potentially just as deadly is the economic impact of the government-imposed shutdowns around the world to enforce social distancing to reduce the spread of the virus. Millions of people are out of work, and hundreds of thousands of

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Fed Eats Buffett’s Lunch

May 6, 2020

In my recent conference calls with our accounts, I’ve been making the case for investing in crony capitalism. This system differs from entrepreneurial capitalism where the business of companies is to compete with one another fairly and squarely for their customers’ business. Entrepreneurial capitalists who fail to do so go out of business. Those who succeed prosper.
The problem is that successful entrepreneurial capitalists tend to become crony capitalists when they pay off politicians to impose legal and regulatory barriers to market entry by new competitors. It doesn’t seem to matter to them that they succeeded because no such barriers blocked their access. Rather than cherish and protect the system that allowed them to succeed, they cherish and protect the businesses they have built.

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The Twilight Zone: Where Is Everybody?

April 30, 2020

The very first episode of The Twilight Zone aired on CBS on October 2, 1959. It was titled “Where Is Everybody?.” The TV series was created by Rod Serling and broadcast from 1959 to 1964. Wikipedia observes: “Each episode presents a stand-alone story in which characters find themselves dealing with often disturbing or unusual events, an experience described as entering ‘The Twilight Zone,’ often with a surprise ending and a moral. Although predominantly science-fiction, the show’s paranormal and Kafkaesque events leaned the show towards fantasy and horror.”
Each episode started with Serling explaining: “There is a fifth dimension, beyond that which is known to man. It is a dimension as vast as space and as timeless as infinity. It is the middle ground between light and shadow, between

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Fed Trying To Contain Zombie Apocalypse It Created

April 22, 2020

Creating the Zombie Apocalypse. Fed Chair Jerome Powell is doing an admirable job of playing the action hero in “2012 Zombie Apocalypse,” a 2011 film about a fictional virus, VM2, that causes a global pandemic. He is doing whatever it takes to stop the zombies from killing us by ruining our economy and way of life.
In my recently released book Fed Watching for Fun & Profit, I defined the zombies as living-dead firms that continue to produce even though they are bleeding cash. In a purely capitalist system, they should go out of business and be buried. However, these firms survive only because they are kept on life support by government subsidies, usually because of political cronyism, which corrupts and undermines capitalism. In recent years, the Fed’s ultra-easy monetary policies have

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From Reach for Yield to Mad Dash for Cash to Rebalancing into Stocks

April 16, 2020

We live in an age of future shocks. It wasn’t too long ago that everyone seemed to be reaching for yield in the bond and stock markets. Actually, that was evident as recently as January 17 of this year, when the yield spread between high-yield corporate bonds and the 10-year US Treasury bond fell to 322bps, the lowest since October 8, 2018 (Fig. 1). That was followed by a mad dash for cash, as evidenced by the jump in this spread to 1,062bps on March 23, which was the highest reading since May 26, 2009. That also happened to be the day that the Fed announced QE4ever. Since March 24, it’s been a mad dash to rebalance away from cash and bonds into stocks.
That’s evidenced by the 27.2% jump in the S&P 500 since March 23 through Tuesday’s close (Fig. 2). The index is still down 15.9% from

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Tech Is Going Even More Viral

April 11, 2020

Anyone who wasn’t a tech addict before the Great Virus Crisis (GVC) turned our lives upside down certainly is now. For many of us, working from home has only emphasized our need for fast wireless connections to the cloud. Cocktails and conference calls via Zoom have helped us connect despite the separation. And Netflix and video-gaming systems have kept the whole family entertained. Technology has become a GVC staple, right up there with food and toilet paper.
The tech names helping us during this time of social distancing are scattered primarily throughout the S&P 500 Information Technology and Communication Services sectors. Both sectors are leaders in the performance derby among S&P 500 sectors ytd through Tuesday’s close: Information Technology (-9.4%), Consumer Staples (-9.7),

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The Most Common Sense Way To Stop Spreading the Virus (#masks4all)

March 31, 2020

Executive Order To Slow Spread. The President of the United States should issue an executive order immediately requiring everyone to wear surgical masks or washable DIY masks made from cotton t-shirts when they go out. Along with social distancing and widespread testing, #masks4all is likely to dramatically slow the spread of the COVID-19 virus.
Experts Changing Their Minds on Masks. In our March 25 Morning Briefing, we wrote: “Hopefully, social distancing for a few weeks and widespread testing will allow us to return to our normal lives in a few weeks. Meanwhile, we should produce billions of surgical masks to wear when we venture out of our homes. Indeed, the government should mandate that everyone wear a mask outside their homes until the crisis passes. Authorities are doing that in

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Stock Market Fears Virus of Socialism Almost as Much as COVID-19

March 4, 2020

I’ve been asked several times since last week’s stock market correction whether the selloff might not be just about the COVID-19 virus outbreak. Might the emergence of Bernie Sanders as the Democratic party’s frontrunner—and the possibility that it will be a “democratic socialist” running against Donald Trump in the general election—in part explain the stock market rout? The S&P 500 peaked at a record high of 3386.15 on Wednesday, February 19. It plunged 12.8% to 2954.22 on Friday, February 28. There were lots of headlines about the spreading virus that coincided with the plunge in stock prices. However, also coincidently, Bernie won the New Hampshire primary on Tuesday, February 11.
Sanders took New Hampshire with the support of a majority of the voters aged 18 to 29, winning 51% of

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Government Measures To Stop COVID-19 Triggering Pandemic of Fear

February 26, 2020

Our rapid-response team at Yardeni Research first responded to the coronavirus outbreak in the Monday, 1/27 issue of our Morning Briefing, which was titled “Going Viral?” That was the next business day after the outbreak first hit the headlines on Friday, 1/24. Let’s review some of our initial assessments and the latest developments:
(1) Panic attack #66 could be the one that causes a global recession and a bear market. In our 1/27 analysis, we suggested that the outbreak had the potential to be added to our list of 65 panic attacks since the start of the current bull market: “Will the coronavirus outbreak that started in the Chinese city of Wuhan, Hubei turn out to be just the latest panic attack that provides yet another buying opportunity for stock investors? Fears that it could turn

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Powell Says Economy Is ‘In a Very Good Place.’ Time To Worry?

February 20, 2020

Fed I: Balanced MPR. My colleague Melissa Tagg and I read the Federal Reserve’s 71-page semi-annual Monetary Policy Report (MPR) to Congress dated February 7. We concluded that Fed officials believe the US economy is well balanced and that they will keep the federal funds rate in the current range of 1.50%-1.75%. Nevertheless, they are concerned about several global issues, which they are monitoring closely.
Federal Reserve Chair Jerome Powell emphasized during his MPR congressional testimony on February 11 and 12 that the “US economy is in a very good place.” The threat from the coronavirus is something to watch, he said, but too early to understand. Nevertheless, he affirmed that “there is no reason why the expansion can’t continue.”
Below, we review reasons that Fed officials are

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With Immunity to Coronavirus, US Stocks Melt Up with Impunity

February 13, 2020

I discussed the possibility of a meltup in stock prices in my 12/18/19 Morning Briefing titled “2020 Vision.” I wrote: “Another risk is that investors could conclude that there is nothing to fear but fear itself. That could lead to a meltup. When the S&P 500 rose to our 3100 target for this year on 11/15, we started to consider the possibility of a meltup scenario involving an advance to our 3500 year-end 2020 target well ahead of schedule in early 2020. We may be experiencing that meltup now given that the S&P 500 is getting close to 3200 already!”
I reiterated this view in my first commentary of 2020, dated 1/6 and titled “Nothing to Fear But Nothing to Fear (and Iran).” As it turned out, the crisis with Iran didn’t last long enough to merit adding it to our Table of S&P 500 Panic

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Fed on Hold as Inflation Remains Stubbornly Below Fed’s 2.0% Target

February 5, 2020

I believe that the 1/29 Federal Open Market Committee (FOMC) statement and Federal Reserve Chair Jerome Powell’s same-day press conference suggest that the Fed is likely to stay on hold through the end of this year. Furthermore, the Fed’s next move, whenever that comes, is likelier to be a rate cut than the start of more hikes. That’s because Fed officials remain concerned that inflation has stayed stubbornly below their 2.0% target.
Last year, the FOMC cut interest rates three times—on 7/31, 9/18, and 10/30—by a total of 75 basis points, from the 2.25%–2.50% range to 1.50%–1.75%. The committee voted to keep the range unchanged at both its 12/11/19 and 1/29 meetings. So far this year, comments from voting Fed officials indicate that the FOMC is likely to hold rates where they are for

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Sinatra’s Stock Market: Fly Me to the Moon

January 23, 2020

If today’s stock market had a theme song, it would be “Fly Me to the Moon.” It was written in 1954 by Bart Howard and recorded by lots of top singers. Frank Sinatra and the Count Basie Orchestra recorded a version of the song arranged by Quincy Jones in 1964. “Fly me to the moon / Let me play among the stars”: Those lyrics could as easily be about an investor frolicking in today’s stock market as a fellow smitten by love. Investors love the stock market these days! It has aroused their animal spirits. They are sending it to the moon, and going right along with it.
What’s not to love about the S&P 500, which is up 3.1% so far this year? It is up 41.6% since the Xmas Eve bottom on 12/24/18, 55.6% since Trump was elected president, and 392.2% since the start of the current bull market (Fig.

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Nothing To Fear But Nothing To Fear

January 17, 2020

Strategy I: Here Comes Another Earnings Season. First, the bad news: During the 1/9 week, industry analysts estimated that S&P 500 earnings per share fell 1.7% y/y in Q4-2019 (Fig. 1). They currently estimate that earnings rose just 1.1% last year (Fig. 2). That was mostly because the comparison with 2018 was tough, as earnings soared 23.8% that year thanks to Trump’s tax cut for corporations.
In addition, S&P 500 revenues per share growth was remarkably strong during 2018, rising 8.9% (Fig. 3). In other words, the S&P 500 profit margin jumped 14.9% during 2018 mostly thanks to the tax cut (i.e.,14.9% = 23.8% – 8.9%) (Fig. 4). That’s a hard act to follow, as demonstrated by 2019’s so-called “earnings growth recession.”
The good news is that the outlook for 2020, both from industry

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