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The US economy is slowing because of the Fed, not because of the dispute with China

By Michael Knox - posted Monday, 19 August 2019


As a result of this slowdown, earnings per share growth of US companies has slowed almost to a standstill. 12 month rolling earnings per share is almost flat as we move through the first, second and third quarters of 2019. There is a promised rise in the fourth quarter, but we will have to wait until the fourth quarter, to see if those better 12 month rolling earnings per share actually occur.

Right now, we make fair value of the S&P500 at 2757 points. The S&P500 has fallen from a level 225 points above that valuation in recent days.

All that is happening is that the slower growth, inflicted on the US economy by Fed tightening, is now having a slowing effect on US operating earnings per share growth. (Again, this slowdown has nothing to do with trade).

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The US equities market is adjusting to these slower earnings per share growth and, as a result, is declining to a level of valuation which is much more suitable to current fundamentals.

Conclusion

The US economy has slowed from a growth rate of around 3% per annum, to a growth rate of around 2% per annum. This slowdown has nothing to do with trade policy. It is the result of gradual tightening of monetary policy by the Fed.

As a result of this slowdown in growth, earnings per share growth has also slowed. Right now, we make fair value of the S&P500 at 2757 points. The S&P500 has been falling towards that level.

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Disclaimer

The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual’s relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so. Those acting upon such information without advice do so entirely at their own risk.

This report was prepared as private communication to clients of Morgans and is not intended for public circulation, publication or for use by any third party. The contents of this report may not be reproduced in whole or in part without the prior written consent of Morgans. While this report is based on information from sources which Morgans believes are reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect Morgans judgement at this date and are subject to change. Morgans is under no obligation to provide revised assessments in the event of changed circumstances. This report does not constitute an offer or invitation to purchase any securities and should not be relied upon in connection with any contract or commitment whatsoever.



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About the Author

Michael Knox is Chief Economist and Director of Strategy at Morgans.

Other articles by this Author

All articles by Michael Knox

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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