American companies are posting “stellar results”, but the stockmarket has reacted with a shrug, says Patrick Mathurin in the Financial Times.
Most have now reported their second-quarter earnings.
The April-to-June quarter marked the peak of the reopening boom; the world’s biggest economy grew at an annualised rate of 6.5% as restrictions were lifted and consumers spent their government-funded stimulus cheques.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Corporate America counts its cash
Profits at 87% of firms have beaten analysts’ forecasts so far, says Karen Langley in The Wall Street Journal. That is the highest level of “earnings beats” in more than a decade. At the start of April, Wall Street analysts thought that second-quarter earnings would grow by 53% compared with a year before.
That figure now looks closer to 90%. Companies have proven adept at “growing their sales while managing their costs”. US blue chips have been using their size and pricing power to pass cost increases directly onto consumers: McDonald’s reports raising menu prices “about 6% over the past year”, but sales still rose.
On 28.1 times trailing earnings, the S&P 500 is trading at “a level unseen since the dotcom era”, says Ben Levisohn in Barron’s. But that doesn’t mean things have to end in tears. A stockmarket implosion is one way to pop a bubble, of course. But another is for earnings to grow so that valuations start to look more reasonable.
These strong results are a step towards this more benign outcome. “None of that precludes a correction along the way really, one should be expected – but as long as the economy keeps growing, the stockmarket should ultimately be OK.”
Inflation ahead
The S&P 500 stock index has soared by almost 20% this year, while as of 3 August the index had notched up a staggering 42 record closing highs this year. Traders are losing enthusiasm, though, says Mathurin. Take Apple: its earnings beat expectations by a massive 28%, but its shares reacted to the news by falling slightly. The reason? “Investors may not view this season’s earnings growth as sustainable”. As inflationary pressures take hold many think corporate margins could shrink.
Those pressures are only growing: this week the US Senate moved a step closer to approving trillions of dollars in new infrastructure spending (see page 10). A new injection of cash will keep the economy running red hot. The jobs market is also showing signs of inflation.
The economy added more jobs than expected last month, with nonfarm payrolls up by 943,000. Unemployment fell to 5.4%. Restaurant owners complain that they just can’t get the staff, even if they raise wages.
Payrolls are still “5.7 million lower than before the pandemic’s onset”, says Randall Forsyth in Barron’s. But that “gap is closing rapidly”. The Federal Reserve says it will only tighten monetary policy – which is still in crisis mode – once there is evidence of “substantial further progress” towards recovery. How does nearly “a million new jobs” in a month sound?
-
Halifax: House price slump continues as prices slide for the sixth consecutive monthUK house prices fell again in September as buyers returned, but the slowdown was not as fast as anticipated, latest Halifax data shows. Where are house prices falling the most?
-
Rents hit a record high - but is the opportunity for buy-to-let investors still strong?UK rent prices have hit a record high with the average hitting over £1,200 a month says Rightmove. Are there still opportunities in buy-to-let?
-
Pension savers turn to gold investmentsInvestors are racing to buy gold to protect their pensions from a stock market correction and high inflation, experts say
-
Where to find the best returns from student accommodationStudent accommodation can be a lucrative investment if you know where to look.
-
Best investing appsLooking for an easy-to-use app to help you start investing, keep track of your portfolio or make trades on the go? We round up the best investing apps
-
The world’s best bargain stocksSearching for bargain stocks with Alec Cutler of the Orbis Global Balanced Fund, who tells Andrew Van Sickle which sectors are being overlooked.
-
Revealed: the cheapest cities to own a home in BritainNew research reveals the cheapest cities to own a home, taking account of mortgage payments, utility bills and council tax
-
UK recession: How to protect your portfolioAs the UK recession is confirmed, we look at ways to protect your wealth.
