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Dutta: Consensus Likely Too Conservative on US Economic Growth for 2018

Fri, Jan 5, 2018 - 12:19pm

The following is a summary of our recent FS Insider podcast, US Productivity Is Accelerating, Says RenMac’s Neil Dutta, which can be accessed on our site here or on iTunes here.

The bull is likely to remain intact through 2018 — if not 2019 — based on the global growth outlook and leading indicators.

That's the outlook from Neil Dutta, Head of Economics at Renaissance Macro (or RenMac for short), where he and his award-winning team of analysts led by Jeff deGraaf provide daily and weekly updates on the global markets and economy.

We, at Financial Sense Wealth Management, have been following RenMac's work for years and longtime listeners of our podcast know that Neil has consistently pushed back against fears of an imminent crash or global downturn throughout this entire market cycle. Today, we aired another quarterly update from him for our listeners but, if you'd like specific investment ideas or to follow their work on a more regular basis, you can sign up for a trial of their research by clicking here.

Here's what Neil had to say...

Global Economy Still Positive

Global economic growth is still healthy, Neil said, with retail sales and trade data in emerging market economies also positive.

Domestically, the US has a number of idiosyncratic things going for it right now, as well. The US housing market appears strong with home sales at a cycle high, Dutta noted.

jpmorgan global pmi

Inventories are not growing quickly enough given final demand, he added, leaving room for factories to boost levels of inventory investment, which will add to GDP growth.

What does all this mean for equities?

“If the economy is growing, that’s generally going to be a good sign for equity markets,” Dutta said.

Market Risks

If we see yields rise somewhat, that should take some air out of equity markets. As yields didn’t move much last year, we saw outsized growth in equities because earnings growth remained strong, but also because risk premiums fell.

“My sense is that if yields back up, it should slow some of the appreciation in equity markets,” Dutta said, adding that regardless, he doesn’t expect this to derail the bull market yet.

The real risk to equities is likely to stem from an unexpected upturn in underlying consumer price inflation, which could potentially speed up the Fed rate-raising cycle, he said.

“If the Fed speeds up, we could see a scenario where equity markets come under pressure,” Dutta said. “Higher interest rates could take a lot of steam out of the equity market. That’s a risk.”

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