The Wall Street Journal reports (and I agree), Even a Goldilocks Economy Could Be a Bear for Stocks.

> On balance, policy makers expect to raise rates four more times by the end of next year. The economy will slow, with gross domestic product up 2.5% on the year in the fourth quarter of 2019. The unemployment rate will drift a bit lower to 3.5% and inflation will come in at 2%.

> What is the outlook for companies under that scenario? If their demand grows about as fast as the economy, adding in inflation, sales would be up about 4.5% in the fourth quarter next year. So the only way for profits to grow at a faster clip would be for profit margins to expand.

> That seems like a bad bet. Even after adjusting for the effects of this year’s tax cut, profit margins for companies in the S&P 500 are historically quite high. Then consider how hard it would be to contain, much less cut, labor costs with an unemployment rate at 3.5%.

Bad Bet

Image from Five plot holes often overlooked in the story of Goldilocks and the Three Bears.

The WSJ article puts things mildly.

It's not a "bad bet" to think profit margins will expand. It's a "horrible bet".

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