U.S. Economy Back on Track?

by:
Managing Director, Economist, and Portfolio Manager, New York Life Investment Management

The data is showing that the U.S. economy is back on track following slow growth in the first quarter, and the first-quarter earnings season was a positive development. It all means that the Fed is likely to raise rates when it meets in June.

Retail sales rose 0.4% in April, and the University of Michigan Consumer Sentiment Report made a four-month high. Add in 211,000 jobs created last month, plus the other readings, and the Atlanta Fed’s GDPNow forecast for the second quarter is 3.6%, as of May 12.

University of Michigan: Consumer Sentiment since 1980

Source: Bloomberg, 5/16/17.

The first-quarter earnings season showed 75% of S&P 500 firms beating their earnings estimate and 66% beating on sales, with 91% of the index constituents having reported, according to FactSet. Earnings per share (EPS) growth appears on track to be up 13.5% versus the same quarter a year ago.

In recent years, U.S. and global equity returns have been driven mainly by multiple expansion, which you can see here in orange. Going forward, we expect returns to be led by earnings per share growth and dividends.

In Recent Years, Equity Returns Have Relied on Multiple Expansion

 

Sources: Bloomberg and Epoch Investment Partners, 12/31/16. Past performance is no guarantee of future results. It is not possible to invest directly in an index.

All investments are subject to market risk, including possible loss of principal. There is no assurance that the investment objectives mentioned will be met. Diversification cannot assure a profit or protect against a loss in a declining market.

The information contained herein is general in nature and is provided solely for educational and informational purposes. New York Life does not provide legal, accounting, or tax advice. You should obtain advice specific to your circumstances from your own legal, accounting, and tax advisors. The information and opinions contained herein are for general information use only. MainStay Investments does not guarantee their accuracy or completeness, nor does MainStay Investments assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are as of the date of this report, are subject to change without notice, and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. There can be no guarantee that any projection, forecast, or opinion in this material will be realized.

Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company’s profitability. Dividend yield is a financial ratio that indicates how much a company pays out in dividends each year relative to its share price. Profit & Earnings (P&E) expansion is a useful ratio and can help provide insight about a variety of aspects of a company’s financial performance.

The S&P 500 Index is widely regarded as the standard for measuring large-cap U.S. stock-market performance. The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets.

MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services. Securities distributed through NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors is a Member FINRA/SIPC.

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Poul Kristensen, CFA

Managing Director, Economist, and Portfolio Manager, New York Life Investment Management

Poul Kristensen, CFA is Managing Director, Economist and Portfolio Manager with New York Life Investment Management’s multi-asset strategic asset allocation & solutions (SAS) group

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