Last quote by David Kostin
David Kostin quotes
Congressional deficit hawks may constrain Mr. Trump's tax reform plans, and the (earnings) boost investors expect may not materialize.
Policy uncertainty introduces a degree of instability to our 2017 forecast that has been absent in recent years. Uncertainty always exists when forecasting, but our projections for next year have more elements of instability than usual.
Health Care Equipment & Services is one of the few slices of the U.S. market that has demonstrated a statistically significant relationship with changes in presidential election odds.
While near-term drug stocks may benefit from a relief rally, we still expect that drug pricing may remain a bipartisan issue and any changes to Obamacare may be drawn out. New regulations targeting drug pricing and the cost of the Affordable Care Act (ACA) legislation (a/k/a 'Obamacare') will pressure revenues of Pharmaceutical and Biotech firms while increased utilization will continue to benefit Medical Equipment and Services companies.
We expect tax reform legislation under the Trump administration will encourage firms to repatriate $200 billion of overseas cash next year. A significant portion of returning funds will be directed to buybacks based on the pattern of the tax holiday in 2004.
We expect firms will increase cash spending allocated to investing for growth (capex, R&D, and M&A) by 6 percent to $1.3 trillion while cash returned to shareholders (buybacks and dividends) will rise by 19 percent to $1.2 trillion.
Tax and trade reform appear to be high priorities for President elect Trump. Cyclical stocks that should benefit most will have high domestic sales, sizeable profits held overseas that may be repatriated, and/or high corporate tax rates.
Following several years of gridlock inside the Beltway, the potential now exists for a number of legislative initiatives to be passed.
While investors focus on the election, stocks focus on rising wages and expected inflation.
Rising inflation supports the outperformance of cyclical sectors ... over stocks with bond-like qualities [such as consumer staples].
Firms with the most consistently positive EPS revisions from 2011 to 2016 bought back more stock and reduced share count by more than the usual S&P 500 company, expanded margins and had more positive sales revisions than the typical firm.
The candidates would likely look toward corporate tax reform, particularly on untaxed foreign profits, to fund their expansionary fiscal policies. Politicians on both sides of the aisle have advocated for a repatriation holiday, where untaxed foreign profits are taxed at a lower, one-time rate.
We see a weak 3Q reporting season coupled with negative 4Q EPS revisions pushing stocks 2 percent lower to our year-end target of 2,100.
We see a weak 3Q [third quarter] reporting season coupled with negative 4Q EPS [fourth quarter earnings per share] revisions pushing stocks 2% lower to our year-end target of 2100.
We believe the current below-average level of uncertainty is unlikely to persist. Regardless of victor, the most likely policy outcome of the election is increased fiscal spending. We recommend clients vote with their wallets and focus on the likely beneficiaries.
Upcoming debate ranks as the biggest match-up since the Mayweather/Pacquiao bout...viewership may approach Super Bowl proportions with an audience of perhaps 100 million. Both presidential candidates support fiscal spending which should lift aggregate end demand and benefit firms with high government sales exposure.
Low GDP growth and uncertain Fed policy pose risks to cyclical outperformance through year-end.
Based on history, an index-level ROE of 14 pecent implies a P/B of 2.1x, suggesting index downside of 25 percent.
The historical relationship between ROE and P/B shows investors typically penalize falling profitability with lower valuation.
We forecast the S&P 500 will follow a 'fat and flat' trajectory over the next 12 months and finish at 2175, roughly 2 percent above the current level.
Managements expressed concern that consumers will postpone spending due to rising political and economic uncertainty. However, financial firms noted an improvement in household balance sheets.
During the last 10 years, S&P 500 revenues have expanded at an annualized pace of 2.9 percent, nearly the slowest pace in history.
We expect U.S. GDP growth of 2 percent and diverging monetary policy regimes between the U.S. and other major global economies will strengthen the USD [U.S. dollar] during the next 12 months. A more hawkish Fed than the market currently expects, coupled with additional monetary easing in Europe and Japan should boost the U.S. dollar by 7 percent during the next 12 months.
S&P 500 stands at an all-time high and the median stock's P/E is at the 99th percentile relative to the past 40 years.
The current U.S. earnings recession will not end in 2Q [second quarter]. Factors like "rising political uncertainty, unstable global growth prospects, and decelerating buybacks" will add to the risk.
Firms with the highest operating leverage will benefit most from improving activity and the associated pickup in sales growth. Operating leverage is highest in Health Care and lowest in Materials and Energy.
Diversified fund managers who are currently underweight REITs are unlikely to suddenly move to a market weight position in real estate just because the industry group is reclassified as a sector.