• The U.S. economy demonstrated its continued strength this week as retail sales data for July came in well above economists’ expectations and showed solid annual growth.1
  • Corporate earnings reports this year have reflected the healthy economic conditions. For example, Q2 2018 marked the second consecutive quarter of 20%-plus earnings growth and the third consecutive quarter of double-digit earnings growth.2
  • Yet some analysts believe that Q2 earnings may represent a peak in the current cycle and are more restrained about the prospects for corporate earnings, and economic prospects, in the coming quarters.3
  • As the chart shows, forecasts for revenue growth, a key component of corporate earnings, of S&P 500 companies show a gradual deceleration in the second half of 2018, from 9.5% in Q2 to just 5.9% in Q4.4 Likewise, the University of Michigan’s measure of current economic conditions sits far above a similar measure of consumer expectations.5
  • As we noted last week, many of the drivers behind the current, long-running bull market – accommodative central bank policy, ultralow Treasury yields, limited volatility and strong economic tailwinds among them – appear to be shifting. Changing market or economic environments often lead to heightened market volatility as investors adjust to a new environment.

1 U.S. Department of Commerce,https://bit.ly/29M7TUt.
2 FactSet, https://bit.ly/2MTz2rd.
3 Yardeni Research, page 1, https://bit.ly/2Mn7H4B.
4 The Daily Shot, based on data from Credit Suisse, as of August 15, 2018.
5 University of Michigan surveys of consumers, https://bit.ly/1gDEQwe.


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