06-14-2016, 03:44 AM
The best argument for a bear market:
The 2016 calendar year may well see productivity growth in the US economy slumping to around 0.5 per cent, a catastrophic outcome for an economy in the middle of a cyclical upturn. This is part of a worldwide phenomenon which began some decades ago, and shows no sign of ending.
The rise in the profit share in the US, and the decline in the bond yield, have together had a greater effect on equity prices than the opposite effect from the productivity slump.
So does this mean that investors can sit back and relax in the face of a productivity crisis that will clearly damage the outlook for the global economy very seriously? I doubt whether this aberration can last forever. The decline in the real bond yield may be reaching its limits in some economies. And the sharp falls in the unemployment rate, especially in the US, could cause greater wage pressure and a decline in the profit share in GDP. In fact, if investors come to the view that future growth in corporate earnings will be depressed below the growth of nominal GDP as the share of wages in the economy reverts to its long term mean, then earlier declines in productivity might suddenly come home to roost. In the past year, unit labour costs have been rising more rapidly than output prices, and profit margins have been falling [4].
Why hasn’t the productivity crisis caused a bear market (yet)? | Gavyn Davies