Understanding the Widening of the U.S. Trade Deficit

2018 U.S. Macro Outlook Summary: Stronger Economy, Full Employment, Rising Inflation

Chief Economist (US), RDQ Economics

John Ryding

Chief Economist (US)

RDQ Economics

RDQ Economics provides global macroeconomic consulting services with an emphasis on U.S. economic fundamentals and monetary policy.  
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Our views are driven by consistent application of classical economic and monetary principles and has generated superior anticipation of changes in the stance of monetary policy and of movements in economic growth and inflation.
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The founders of RDQ Economics—John Ryding and Conrad DeQuadros—worked together on Wall Street for a decade, in the independent research space for nine years, and have experience in central banking at the Federal Reserve and the Bank of England.  John and Conrad have worked closely with fixed income, foreign exchange, and equity traders and portfolio managers, which has enabled their analysis and advice to be tailored to a clientele that is focused on trading and investment decisions.

Macroeconomics

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<li>The equity market in the fourth quarter of 2018 was throwing off recession-like signals with the 19.8% drop in equity prices from the S&amp;P 500's all-time high through the near-term trough of December 24, 2018.  We see the decline as a correction from an overvalued position in late September rather than as point to an impending recession.</li>
<li>Key to the outlook for equities and the economy are economy-wide profit margins (share of nonfinancial corporate profits in output).  It appears the balance between price increases and productivity-adjusted labor costs has improved as productivity has accelerated despite a pickup in the growth of labor compensation.  The corporate tax cut has spurred post-tax margins close to record highs.</li>
<li>We expect nonfinancial corporate profit growth of 7% on average over the next two years, which should support equity prices.   However, the scope for a strong further rebound in equity prices is challenged by our outlook for rising corporate bond yields (our valuation model suggests rising profits and higher yields roughly cancel each other out in our valuation model). </li>
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The equity market in the fourth quarter of 2018 was throwing off recession-like signals with the 19.8% drop in equity prices from the S&amp;P 500's all-time high through the near-term trough of December 24, 2018.  We see the decline as a correction from an overvalued position in late September rather than as point to an impending recession.
Key to the outlook for equities and the economy are economy-wide profit margins (share of nonfinancial corporate profits in output).  It appears the balance between price increases and productivity-adjusted labor costs has improved as productivity has accelerated despite a pickup in the growth of labor compensation.  The corporate tax cut has spurred post-tax margins close to record highs.
We expect nonfinancial corporate profit growth of 7% on average over the next two years, which should support equity prices.   However, the scope for a strong further rebound in equity prices is challenged by our outlook for rising corporate bond yields (our valuation model suggests rising profits and higher yields roughly cancel each other out in our valuation model). 


2019 Equity Market Outlook