Signs of slowing global growth have fueled worries of tepid domestic inflation. Consumer price growth has softened, but producer price and wage growth remain solid. We expect consumer price inflation to pick up as global headwinds subside.
The U.S. economy has suffered from seasonal first-quarter weakness recently. Seasons change, and growth typically rebounds as the year progresses. Leading indicators in jobs, manufacturing, and markets suggest economic acceleration.
We look at what’s priced into stocks following year-to-date strength to help gauge potential impact of surprises and disappointments. When we look at what’s not priced in, we see several possible surprises that could propel the stock market to new highs. Possible positive surprises include the stimulus boost from a potential China trade deal and better-thanexpected corporate profits in 2019.
We expect roughly flat earnings for the first quarter, putting the seven-quarter streak of growth in jeopardy. The picture seems quite a bit better when looking beyond the first quarter, which we see as a trough in growth. We expect enough economic growth ahead to drive record profits in 2019, supported by fiscal stimulus, robust manufacturing output, healthy labor markets, and a U.S.-China trade deal.