Will The Fed Get It Wrong?

July 10, 2017

First of all, we hope everyone had a happy, healthy, and safe Fourth of July!  Today marks the first full trading week of the third quarter and we have a lot coming up in the weeks ahead as companies begin to report their second-quarter numbers. We would like to take this opportunity to present you with our Q3 2017 Look Ahead.

For our PDF presentation, click here.

For our audio and video presentation, click here.

The following are a few noteworthy highlights from our Q3 2017 Look Ahead. 

  1. Earnings growth remains strong. In fact, since the corporate earnings recession that ended this same quarter last year, corporate earnings have continued to accelerate. [i]
    EPS Actuals and estimates.JPG
  2. There is a comfortable gap between the current inflation rate of 1.7% [ii] and the Fed’s long-run target of 2%. [iv] We question whether the Fed will continue to raise rates and how the Fed will be able to start normalizing its $4.2 trillion balance sheet. [iii]
    Fed balance sheet.JPG
  3. Will the bear market in WTI Crude Oil have an impact on our level of inflation? [i]
    Oil and Correlation.JPG
  4. A broken Phillips curve is leading the Fed down a dangerous path because low unemployment has not driven inflation to increase as the curve would suggest. [i]
    Phillips Curve.JPG

Despite disinflationary pressures and broken Federal Reserve metrics, such as the Phillips Curve, corporate earnings are on the rise and remain the driving force behind the bull market in equities.

Check out our Q3 2017 Look Ahead PDF and Video presentations for detailed analysis and commentary, and our recommendations for our expectations of the quarter ahead. 

If you have questions or comments, please let us know.  We always appreciate your feedback.  You can contact us via Twitter and Facebook, or you can e-mail me directly.  For additional information, please visit our website.

Tim Phillips, CEO, Phillips & Company 
Robert Dinelli, Investment Analyst, Phillips & Company 

 

References:

i.           https://phillipsandco.com/files/2314/9936/7413/Look_Ahead_2017Q3-Final.pdf
ii.          https://fred.stlouisfed.org/series/CPILFESL
iii.         https://phillipsandco.com/blog/diving-into-the-unknown/
iv.         https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20170614.pdf