TSG Quarterly Commentaries






3.0+% Economic Growth

U.S. economic growth is expected to gain momentum to 3%.  Corporate profit growth is rising.  Capital spending should get a boost from improving business confidence and the benefits of tax reform.  Fiscal stimulus measures are likely on the horizon.  A stable employment environment is contributing to improving consumer confidence, which is fueling consumption growth.  Improving profits and growth remain supportive of higher equity prices.

International Growth

Growth is improving across the globe.  Eurozone industrial production is accelerating, the PMI is solidly in expansionary territory, and employment is rising.  Growth in Southeast Asia is accelerating with Vietnam posting its highest GDP growth rate in a decade.  Third quarter GDP in Latin America rose to its highest annual pace since first quarter 2014 and is projected to accelerate in 2018 and 2019.   Central banks remain accommodative.  Geopolitical events, including Brexit negotiations and a quieter but nonetheless active populist voice, have the potential to disrupt the growth outlook. 

Tax Policy

The recently enacted tax legislation should be viewed as pro-growth.  Amongst the corporate benefits are the lowering of the corporate tax rate to 21% and allowing 100% expensing of new capital equipment purchases for the next five years.  Repatriation of foreign earnings will also be taxed at a rate of 15.5% on income held as cash, which should free up cash for investment and shareholder friendly actions.  Most individuals will also experience lower tax rates providing greater disposable income.

Business Optimism

Business confidence is tracking near multi-year highs bolstered by lessening regulatory cost pressures and the passage of the tax reform legislation.  Projections for spending and hiring have risen given the improving global outlook.  With tax legislation passed, the opportunity for fiscal initiatives targeted at infrastructure improvement is raised, which could lengthen the business cycle.  Homebuilder confidence also remains at multi-year highs.  An area of concern within the business community is the growing tightness in the labor markets.


Consumer spending should continue to be buttressed by a firm job market, lower taxes, rising confidence, and little price inflation.  Gas prices have moved higher with the rise in oil prices, but we do not expect significant further upside.  Home ownership rates remain at decade lows, but with rising household formation amongst the millennial age population, home ownership is expected to rise slowly as housing prices remain elevated.  The housing cycle should prove favorable for builders and for continued growth in renovation activity, benefiting those companies within the home improvement and building supply ecosystem.         



Federal Reserve Policy

The Federal Reserve will transition to a new Chair, Jerome Powell, in the first quarter.  Most believe his policy leanings are similar to current Chair Yellen, however, coupled with the appointment of new Vice Chairs and four new governors, this could create some policy uncertainty.  The current expectation is for continued gradual rate normalization, with any changes to be data dependent.  Two to three rate hikes are expected in 2018 given the current healthy labor market and the forecast of inflation stabilizing around 2% over the next few years. 

Trump Administration Agenda

Passage of tax legislation at the end of 2017 was a sign of progress for the Trump Administration agenda.  The lessening of regulatory cost pressures has been viewed positively by the business community as well.  Infrastructure and trade policies are likely to be the next areas of focus, with health care reform still facing a difficult path forward.  Trade related protectionism could be disruptive to financial markets. 




The restrictive immigration policies being pursued by the Trump Administration have the potential to disrupt growth prospects by limiting the pool of available workers across the employment spectrum.  Construction, manufacturing, and agriculture sectors are facing worker shortages as both documented and undocumented immigrants are leaving the country.  Additionally, the information technology sector could be impacted due to a revamp of the H-1B visa program. 

Cyber Threat

Cyber espionage is a destabilizing threat from a political, security, and economic perspective.  Ransomware attacks have escalated on government, private, and public networks and must be continuously monitored with greater emphasis on security to thwart those intent on causing harm.

Geopolitical Risk

Tensions between the U. S. and North Korea remain elevated.  The increased nuclear threat and intensified rhetoric between the U. S. and North Korea will produce periods of uncertainty for investors.



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