US markets are poised to witness a modest deceleration in economic growth as the unwinding of the pro-cyclical tax reform takes effect in 2019…..
By Aneeka Gupta – WisdomTree
However, we continue to remain optimistic on US equities after a strong earnings season in the third quarter in 2018 with average earnings growth expectations as high as 27%.
More importantly even on stripping out the effect of the tax reform average US earnings growth declines to only 18% which in comparison to the rest of world is still very high.
The recent results of the midterm elections confirm that Trump’s key fiscal policies such as Tax reform.1 and de-regulation are likely to remain in place.
However, the gridlock in parliament suggests we are likely to greater oversight on Trump’s policy on trade, infrastructure, healthcare and immigration reform.
After the recent sell-off of US equities in October, US equity valuations are attractive on a 21x price to earnings ratio.
We remain cautious of the recent sell off in the technology sector and favour more defensive sectors such as healthcare, utilities and consumer staples.
Consumer confidence remains at an 18-year high and unemployment at a 49-year low. Core inflation is around the 2% mark.
Federal reserve Chairman Jerome Powell has dialled down his rhetoric of an aggressive monetary policy stance at his last meeting, as he acknowledged risks to global growth and rising uncertainty owing to trade wars.
Against this backdrop, we anticipate the Fed’s interest rate trajectory will be more gradual in 2019.