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foreseeable future. But, in aggregate, there has been more improvement than deterioration, in our view.

In this Sunday Night Insight, we will provide a brief update on the steady factors and unsteady undertow. We then conclude with our view that the steady factors will likely continue to win this tug-of-war between the two.

Steady Factors

While the headlines warn of equity market carnage, the facts do not support such alarming headlines. The S&P 500 is still up 5.1% on a year-to-date total return basis and financial conditions remain at easier levels today than they did when the Federal Reserve began this tightening cycle in 2015, despite the recent decline in equities and 0.76 percentage point increase in 10-year Treasury yields year-to-date. Most importantly, as highlighted by Federal Reserve Chairman, Jerome Powell, we are in "extraordinary times" of steady growth and low inflation.

Economic Growth

Economic growth remains firm in the US. Both the Institute for Supply Management leading indexes for manufacturing and non-manufacturing remain at very strong levels. Current activity indicators of real GDP growth average about 3.5% for the third quarter and closer to 4% for the fourth quarter. Forecasts for third quarter real GDP average 3.8% and fourth quarter forecasts are about 2.8%. While growth is slowing from the 4.2% estimate of the second quarter, it is still forecast to be above trend and we believe a modest slowdown is certainly preferable to continued growth at a pace that was likely unsustainable and possibly even inflationary.

In aggregate, the economic data since the intraday peak of US equities on September 21st does not point to any worrisome slowdown in GDP growth or the pace of employment. In fact, while the recent 134K increase in non-farm payrolls was less than expectations, revisions to earlier months offset the modest headline miss and the unemployment rate still fell to 3.7%. Furthermore, this 134k increase is above the estimated sustainable level of employment growth based on population growth and changes in labor force participation, which our colleagues in Goldman Investment Research estimate is around 96k. Importantly, a modest slowdown in the 3-month average of non-farm payrolls, which currently stands at a very robust 190k jobs, is more likely to keep inflation in check.

Robust Earnings and Buybacks

Continued above-trend economic growth is supporting solid corporate fundamentals. While many are quick to dismiss this strength to US tax reform, it is only half the story. Earnings before interest and taxes (EBIT) expanded by a very healthy 12% in the first half of this year and are expected to grow by double-digits again in the third quarter. This robust organic profit growth is also fueling sizable corporate buybacks—a key source of equity market support. Our colleagues on the corporate buyback desk expect the highest dollar amount for buybacks on record in 2018, with $1tn in authorizations and $850bn in executed buybacks.

Even so, such robust earnings growth has begun to foster concern that we have reached a peak in EPS growth. While we do expect the pace of growth to slow next year, a local peak in earnings

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