Delivering Global Macro Investment Insights

DeSaque Macro Research

DeSaque Macro Research Limited was formed by Said DeSaque in April 2012 with the view to delivering global macro investment insights aimed at providing new ideas to clients.

Said DeSaque has over 26 years of experience working as a professional economist in financial services. Prior to establishing DeSaque Macro Research, Said held positions as Senior Economist at Robert W Baird and William Blair. He began his career as a graduate at PaineWebber in 1986, where he eventually became Head of the London Economics Department.

Said takes a very keen interest in international relations, along with their implications for economic development. His research interests include the economic transformation of China and its implications for global capital markets, particularly in the United States. He is a member of Chatham House in London.

The US economy and capital markets have historically been Said’s main focus of attention. He frequently presents his views to institutional investors in diverse geographic locations. In recent years, Said has also been carefully monitoring economic developments in Asia, particularly China and Japan.

Outlook for US Equities in 2020: Not in a Bubble, but Melt-Up Raises Correction Risks

Global Economist, DeSaque Macro Research

Said Desaque

Global Economist

Macroeconomics

<p>Courtesy of the Fed's dovish policy pivot last year, investors no longer fear a US recession in 2020. Although the economy entered 2020 at a growth rate slightly above its long-term potential, the risks of the Federal Open Market Committee (FOMC) taking back any of last year's policy rate reductions are minuscule. </p><p>Prior to the Great Moderation, the plight of the manufacturing sector had bigger implications for the broader economy and, consequently, investors paid close attention to unfolding developments. Following the protracted hollowing out of the sector and the arrival of more muted economic cycles, the predictive power of manufacturing for  the rest of the economy has fallen, although investors still pay high attention to the sector's unfolding dynamics. Arguably, the Great Moderation itself was a manifestation of the shrinking importance of manufacturing within the economy and the reduced influence of inventory cycles on headline real GDP growth.</p><div>While manufacturing's share of real GDP has declined significantly since the early-1970s, the sector's share of aggregate corporate profits remains sizeable. Recent domestic profit recessions have been driven by adverse developments in the manufacturing sector. Hence, investors should follow manufacturing economic trends to assess risks to the corporate profits outlook rather than the economy. </div><div></div><div>The big test facing US equity investors this year centres around potential valuation stresses if corporate profit expectations fail to improve. Recent investor sector rotation from growth to value will help to sustain the upward trend in US equities due to the latter's cheaper valuations. Cyclical sectors are expected to outperform the S&amp;P500 in terms of operating EPS growth, partly due to easier comparisons in H2. </div><div></div><div>The Fed's dovish policy pivot last year helped to arrest the weakness in the housing sector that emerged in 2018 H2, notably optimism amongst US homebuilders is at its highest level since 1999. Favourable demographics underpin the demand for housing, notably as an increasing number of millennials reach first-time house buying age between 2020 and 2025. Meanwhile, housing affordability over the past year has been enhanced by rising incomes, low mortgage rates and moderating house price inflation. Housing could potentially be the surprise package for the economy during 2020.</div>

Courtesy of the Fed's dovish policy pivot last year, investors no longer fear a US recession in 2020. Although the economy entered 2020 at a growth rate slightly above its long-term potential, the risks of the Federal Open Market Committee (FOMC) taking back any of last year's policy rate reductions are minuscule. Prior to the Great Moderation, the plight of the manufacturing sector had bigger implications for the broader economy and, consequently, investors paid close attention to unfolding developments. Following the protracted hollowing out of the sector and the arrival of more muted economic cycles, the predictive power of manufacturing for  the rest of the economy has fallen, although investors still pay high attention to the sector's unfolding dynamics. Arguably, the Great Moderation itself was a manifestation of the shrinking importance of manufacturing within the economy and the reduced influence of inventory cycles on headline real GDP growth.While manufacturing's share of real GDP has declined significantly since the early-1970s, the sector's share of aggregate corporate profits remains sizeable. Recent domestic profit recessions have been driven by adverse developments in the manufacturing sector. Hence, investors should follow manufacturing economic trends to assess risks to the corporate profits outlook rather than the economy. The big test facing US equity investors this year centres around potential valuation stresses if corporate profit expectations fail to improve. Recent investor sector rotation from growth to value will help to sustain the upward trend in US equities due to the latter's cheaper valuations. Cyclical sectors are expected to outperform the S&amp;P500 in terms of operating EPS growth, partly due to easier comparisons in H2. The Fed's dovish policy pivot last year helped to arrest the weakness in the housing sector that emerged in 2018 H2, notably optimism amongst US homebuilders is at its highest level since 1999. Favourable demographics underpin the demand for housing, notably as an increasing number of millennials reach first-time house buying age between 2020 and 2025. Meanwhile, housing affordability over the past year has been enhanced by rising incomes, low mortgage rates and moderating house price inflation. Housing could potentially be the surprise package for the economy during 2020.

US Manufacturing: Less Predictive for the Economy, but Still Significant for Corporate Profits