Wednesday 27 November 2019

US business cycle outlook

US profits, US business credit growth, US inventory liquidations
Basically margins are being squeezed by late cycle dynamics. So why do sell side analysts think margins will bounce next year? 

Utilities and Healthcare are about the only S&P sectors doing OK this year. Fundamentally all hopes are pinned on this year's substantial margin compression reversing next year. On 5.5% 2020 sales growth, it will take a weak USD and a lot more to make it happen.

From Factset earnings insight:

There is plenty of evidence of margin compression and poor outlook from CEOs. I leave two below.


Most recessions are triggered by inventory liquidation. The run up in inventories into Trump tariffs has not been run down yet, but seems like it will be in Q1, so data should get worse in Q4 and Q1. 

Looking to the Fed H8 survey BUSLOANS chart, by Feb or April BUSLOANS will be flat YoY. That has always been associated with a recession. 

Trump stick saved business loans/ the cycle in 2017 with a tax cut and $1.3Tn fiscal deficit. But the trade war, late cycle dynamics and the prior Fed hiking cycle have brought us again to the brink of a recession. 

How will he stick save it going into an election campaign? When will equities or high yield pay attention?

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