Equity markets could hit new highs in 2020: higher productivity can compensate for a declining jobless rate, to ensure any pick-up in wages is not inflationary.
If, on the other hand, the decline in average hourly earnings for September is genuine, then that suggests companies are proving even more effective at controlling costs, despite the challenges of a tight labour market. That would be even more bullish for equities.
There is one word of caution: WeWork offers an important reminder that ‘irrational exuberance’ brings its own risks. The unravelling of the WeWork business model is not a huge surprise.
The biggest risk to equities may come from external events. The US – China dispute has been an obvious drag on manufacturing.
Nevertheless, the greatest problem may not be the trade spat per se, but a violent showdown between the pro-democracy movement in Hong Kong and the Chinese military. A heavy-handed response from Beijing could prompt significant downward pressure on the renminbi and elicit a robust response from the US.
