Economic and Strategy Viewpoint - November 2019

Profits outlook poses a challenge for US equities

  • The supportive tailwind from lower interest rates is likely to fade, and earnings will have a crucial role in determining equity returns with stock prices to be driven by the real state of the economy and its corporate sector.
  • Last year, the Trump administration's tax cut provided a substantial boost to post-tax profits and was enough to buoy the US stock market to new record highs, masking the deterioration of pre-tax profitability of the US corporate sector.
  • However, the fiscal stimulus has started to fade and we are forecasting US profits to continue to stagnate throughout next year, as rising labour costs and weaker capacity utilisation will put margins under further pressure.

The next crisis?

  • The IMF is worried that parts of the last crisis are repeating themselves, as dollar financing rises.
  • Emerging markets are particularly exposed, but we find that this exposure is not uniform and even if dollar funding is disrupted there are parts of the sector where the impact should be limited.

Fiscal policy: lessons from Japan

  • While things would have been worse without public spending, a lack of a durable recovery in growth or sustained inflation suggest that Japan’s experience with fiscal policy in the 1990s was ultimately unsuccessful.
  • For the rest of world, Japan’s failure has shown that to be most effective, fiscal spending should come in large doses, be productive and sustained. Japan’s case highlights the difficulty that fiscal policy faces if attempting to offset much larger headwinds in the private sector, or lift the potential growth rate.

Please find the full Viewpoint below. 

Read the full report

Economic and Strategy Viewpoint - November 2019 20 pages | 539 kb



The views and opinions contained herein are those of the Authors, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.


This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.


Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested.


Schroders has expressed its own views in this document and these may change (to be used if the 1st statement above is not being used).


Schroders will be a data controller in respect of your personal data. For information on how Schroders might process your personal data, please view our Privacy Policy available at or on request should you not have access to this webpage.


Issued by Schroder Investment Management (Europe) S.A., 5, rue Höhenhof, L-1736 Senningerberg, Luxembourg. Registered No. B 37.799. For your security, communications may be taped or monitored


The forecasts stated in the document are the result of statistical modelling, based on a number of assumptions. Forecasts are subject to a high level of uncertainty regarding future economic and market factors that may affect actual future performance. The forecasts are provided to you for information purposes as at today’s date. Our assumptions may change materially with changes in underlying assumptions that may occur, among other things, as economic and market conditions change. We assume no obligation to provide you with updates or changes to this data as assumptions, economic and market conditions, models or other matters change.