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Strong sales growth in the United States in 2019
$ SPY
Favorable prospects for US revenue growth will help stock market investors worry about the impact of corporate tax cuts next year.
S & P 500 (NYSEArca: SPY) revenue growth, which reached 9.5% in the second quarter, its fastest pace since Y 2011, is estimated at 8.2% for 2018, according to Thomson Reuters data.
Although this growth is expected to slow down somewhat next year, it is still at the peak of the historical average. The decline is not as pronounced as that expected in earnings growth, which was strongly boosted this year by the law on tax cuts and jobs that reduced the corporate tax rate.
This could ease some investors' concerns about earnings growth, which is reaching its peak for the cycle this year, as risks related to pricing, rising interest rates and strengthening the dollar increase.
"Revenue growth outweighs all the concerns we have on the profit side," said the international equity and techniques strategist at the Wells Fargo Investment Institute in St. Louis.
Yes, there is maximum earnings growth, tax cuts, so we want to see sustainable profit growth driven by the business figure, which we are seeing now.
The revenue gains are due to strong demand from economic growth, with GDP posting an annualized 4.2% in the second quarter, the fastest in four years.
The strength of the labor market in the United States contributes at least in part to rising incomes, while capital spending also contributes.
Data released Friday show that US wages in August posted their largest annual gain in 9 years, suggesting that consumer spending will continue to remain strong, accounting for 72% of the US economy.
Rising wages could become a risk for profits at some point, but this may not happen until 2020.
Now, the history of earnings is a story of income. This allows companies to continue to stimulate this growth, and it will be able to offset any slowdown due to higher costs.
Most economists polled by Reuters at the end of August were expecting economic growth to approach the recent four-year high in the coming quarters.
The tax cut, the largest revision of the US tax code for more than 30 years, resulted in higher profits, peaking later in the earnings cycle.
Analysts predict S & P 500 earnings growth of 23.3% for 2018 – the strongest annual growth since 2010 and 10.2% for 2019, according to Thomson Reuters data.
Profits increased by about 24.9% in the second quarter compared to last year, and analysts forecast 22.3% growth for the second quarter.
The results may continue to increase even after growth peaks.
For example, S & P 500 earnings growth peaked in the fourth quarter of 2003, but remained in the double-digit range at least three years later, while revenues remained well above trend .
Notably, over the past 80 years, S & P 500's earnings growth has averaged 6 to 8% per annum, while sales have increased by around 3 to 5%.
Early indications are that this looks like Y 2003, where we could see growth above the trend persist longer than expected. So when we have this type of revenue growth, companies can increase earnings growth above the trend.
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Have a great weekend.
Paul A. Ebeling, polymath, excels in various fields of knowledge. Analyst in Form Recognition in Equities, Commodities and Foreign Exchange and author of the "Technical Report of the Director of the Red Road" in the United States Major Market Indices ™, a highly publicized weekly letter, he is also a philosopher. subjects to more than 250,000 cohorts. An international audience of leading opinion leaders, business leaders and international organizations recognizes Ebeling as an expert.
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