After an exceptionally strong and resilient third quarter for US equities, the bears have stirred up market volatility again with rising rates, trade policy pressure, and the duration of the current economic cycle all leading the list of bearish concerns. While these risks are relevant, and will impact the discount rate applied to equities, we believe the durability and expansion of corporate profit margins will determine equity returns over the next 18 months. Margins are the key to keeping this bull market alive!
Continued positive economic growth in 2018 and in 2019 should provide a revenue tailwind, which combined with even a small measure of operating leverage, is capable of mid-to-high single digit EPS growth in the foreseeable future. With undemanding valuations, and margin durability, equity retracements should be shallow.