Goldman: Easy Monetary Policy Won’t Be Enough If Growth Doesn’t Pick Up Soon
Suddenly, we're back in the teeth of the global slowdown narrative.
In the south, they'd say Donald Trump has "gone and done it now".
While March's growth scare felt a bit contrived, the May sequel feels less so. The imposition of 25% tariffs on the entirety of Chinese exports to the US was deemed highly implausible (if not unthinkable) just 11 months ago, but now, it seems like a foregone conclusion. Again, the worst-case scenario is rapidly becoming the base case.
In retrospect, I suppose w
Growth? Peter Navarro and John Bolton are calling the shots. Forget about growth. Expect the admin’s continued attack on global trade and global supply chains to slash multiple expansion in S&P by a couple hundred basis points — at least. The wild card? Trump knows a sinking stock market means he loses — everything. He will cave before the CCP does.
Look at the bright side: sure seems like Chairman Mao Powell is rolling those treasuries off of the balance sheet now!
do not underestimate corporate america’s ability to generate profits. these supercomputers and artificial intelligence programs aren’t just playing chess and go all day. they are being put to use to maximize profits under all scenarios, including trade war supply chain disruptions.
this note from goldman is what i commented on yesterday. the fate of the market is tied to earnings. if earnings projections fall, so will the market. lowering interest rates helps, because lower interest rates mean higher multiples, but if earnings are falling, so will the market. the typical 3-5% earnings drop from the first optimistic forecasts doesn’t count. that happens every year, so everyone expects that. but more than that or continuing negative YoY growth rates, equities will have a problem. we are now looking at negative YoY for Q2, Q3 flat and Q4 +8% but that is iffy. we are down to 4% YoY growth on a rolling 12 month forward basis and that’s only if Q4 ’19 and Q1 ’20 hold up. no wonder markets are struggling. and this was before the 25% tariffs.
Nice post, Michael.