Will the US Economic Markets Continue to Expand?
Despite the current extreme volatility of U.S. politics, the American economy continues to show a strong performance.
An American economic market remains one of the most expensive markets globally by multipliers and overall stability factors while producing unprecedented results.
Last year, companies from the S&P 500 index showed buybacks at $806.4 billion. The U.S. is the only country in the world to show unprecedented strong performance, but one question remains: Is growth due to former President Barack Obama’s strong policies set in his last term or the new incentives from President Donald Trump?
Both sides of the political spectrum tend to have subjective views of the markets. If you are a follower of the Kondratiev waves economic model (regular cycles), it should have been a downward spiral in the midst of a winter cycle. Instead, the markets are outperforming, and the phenomenon seems to be gaining further momentum.
The leaders of the highest payouts are ExxonMobil, Apple, Microsoft, International Business Machines, AT&T, General Electric, Johnson and Johnson, Pfizer, Procter and Gamble and Walmart.
An important historic dividend at $454 billion translates to a 20% increase from the previous three years. The payout amounts were $1260 billion, which is a 28% increase from the past three years and slightly over 40% in the past decade.
Taking into consideration this century’s overall performance and classifying into groups, the expansion phase went from 2004 to 2007, the decline phase lasted from 2007 to 2009 due to the global crisis. The stabilization phase was from 2009 to 2013 and continuing into 2017 at the 2004 to 2007 levels. The aggressive expansion phase started in 2018. The dynamic of buyback and dividends, as a result of the Tax Cut and Jobs Act, has a high correlation with the market dynamics. Overall, market price creation is based on corporations acting as a central element.
The strong performance and profits in 2018 are attributable to the record investor payouts after one of the largest market drops, the 2008 recession. The market currently is at 2800, while the payout for this year is on track to be at a low 5%. Nevertheless, the payouts might not hold due to last year’s largest-on-record buybacks, which were because of a one-time capital repatriation and absorption. Trump’s Tax Cut and Jobs Act was the catalyst for this unprecedented move, which benefited large corporations and the U.S. markets. Besides 2018 the last successful market spread profitability was in 2007, a short-term positive market dynamic.
Under Obama, the period from 2010 to 2016 was one of the best for investors since it allowed growth and favored capital redistribution of the long-term investors and large entities, including insurance, pension funds, etc.
In the 2018 fourth-quarter, actions of the market manipulators and market makers are logically correct. The U.S. Federal Reserve can push incentives by artificially creating unbearable conditions to change monetary political rhetoric. The change under macroeconomic factors is an acceptable measure rather than artificial manipulation.
All of the above does not necessarily mean the market will continue to grow. Corporations have already redistributed the market share of the tax cut. One market model shows a decline and a possibility of the markets going flat in the 2019 fourth quarter and at the start of 2020.