Claire Corlett

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Fisher Investments on Economic Growth and Corporate Earnings | Capital Markets Update [2019]

Fisher Investments on Economic Growth and Corporate Earnings | Capital Markets Update [2019]


Concerns over slowing economic growth and
corporate profits seem pretty widespread. Does our outlook factor in these concerns
at all? You know Jessica, the punchline to always,
to a question like this is the fact that there’s the presence of global growth. Because one of the great myths that I’ve seen
throughout my career but was especially true in this correction was that people would say,
the narrative is that there’s a sharp slowdown in global growth. Maybe we won’t have a global recession but
there’s a big slowdown and isn’t that bad and how can stocks go up in spite of that? That’s always been a misconception. It’s never been true. The degree to which you have growth is actually
not correlated at all to the extent to which you have stock market returns. Those things aren’t related. The mere presence of positive growth is what
matters the most and it tells you we continue to be in a bull market. When and how the returns comes, we take that
year by year. And this year we think this is the year in
which we get plenty of those returns. But it actually is not very correlated at
all, on a one for one real time basis to the level of growth you have at any given moment. Let’s extend that to earnings growth as well. Because what’s in the media and the headlines
here today is this concept of an earnings recession. And it’s true if you look at quarterly earnings
growth, going into this first quarter, earnings growth is expected to fall and drop into negative
territory and there’s some people that are extrapolating that into the second quarter
of this year and all of a sudden you get this earnings recession. And is that bad and should you get out of
stocks as a result of that? The answer to that is no. I mean we’ve got a long history of earnings
growth. You’ve got to go back no further than 2016,
the last time earnings growth dipped into negative territory and that didn’t preclude
the bull market from continuing. So when you see these scare stories and these
headlines about earnings growth falling into negative territory, that doesn’t necessarily
mean the bull market’s over. Everything’s a little volatile, that’s just
the way life is. But, one of the things that’s not so volatile,
is the spread between analyst estimates of earnings and what ends up finally happening. Earnings come in better than analyst forecast
they will. And partly that’s because, businesses like
to talk down the future earnings so then the analysts estimate a lower number and then
business can subsequently exceed those earnings so they look good. But quarter after quarter after quarter, here’s
the estimated earnings for all of these companies and not all of them but most all of them,
three quarters or more end up doing better than estimated. And that process continues, unless you get
global recession, and in that, well yes, earnings aren’t gonna be as strongly growing this year
as they were last year which would be nearly impossible. You’re still gonna get earnings growth and
you’re gonna get positive surprise. The earnings will be stronger than people
think they will. How much? I don’t know. But they’ll be stronger than people think
they will and we’ll continue to see that in each of the sequential quarters as the year
progresses. Earnings exceed estimates unless you get global
recession. And the other thing that most people don’t
appreciate is that in an economic expansion, the economy doesn’t grow perfectly straight
up. There’s volatility as the cycle goes higher. So anytime there’s a little blip down, people
freak out. Not fully appreciating that there is volatility
to an economic expansion and that the key is, what’s happening with the trend. And all those little blips that we’ve had
in the last decade as this economy’s been expanding, every one of them is rapidly forgotten
when you’re past it. That is people forget that this has happened
so many times before in this expansion that there’s nothing new and different about this. And for views on current events in the world
of investing, visit marketminder.com. Updated daily, it offers on-demand access
to Fisher Investments’ most current thoughts on capital markets and the global economy,
as well as our sometimes irreverent commentary. We hope you’ll enjoy it!

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