The Blackstone strategist generally is bullish about the economy and U.S. stocks. In his latest monthly essay, it makes several arguments in favor of his bullish thesis. But he also writes about what worries him and what events could make his outlook wrong.
My principal worry is earnings disappointment. According to Bianco Research, revenues in 2017 for the S&P 500 are only expected to increase 2%. Energy is a key part of the revenue problem, but even if you leave the energy sector out of the tally, the increase in revenues is only 3%. Up until the end of 2015 revenues were increasing at a 6% (5% without energy) rate and they have been on a downward slope ever since then. Earnings show a similar pattern. For 2017 earnings for the S&P 500 are expected to increase 1%. Without energy the increase is 3%. Until the middle of 2015, earnings were showing an annual increase of 12% and they have been trending downward ever since. There are many more optimistic forecasts for earnings out there, some estimating earnings at $120 to $125 for 2016 and $125 to $130 for 2017. I am skeptical because modest revenue growth and rising wages will compress margins.