It Is Still All About Earnings

Anyone who didn’t believe that earnings would be the key driver for stock market performance can look at the evidence. Despite the war with Iran, the closure of the Strait of Hormuz, the spikes in oil, natural gas, and fertilizer prices, stock markets here and in much of the rest of the world are having a very good year. What is truly remarkable is the rate of projected earnings growth this year. It may approach 20 percent.

How can this be? Some of it is a result of the existing momentum that the economy has had these past few years. Another is that in an inflationary environment, it is easier for companies to raise prices. Productivity has begun to improve, and Artificial Intelligence brings the promise of more to come. Money supply has also been growing. Although many people complain about current interest rates because they remember the abnormally low ones in recent years, they are reasonable. Credit is available.

Sometimes, current events distract us from underlying trends. However, the factors that determine the value of an ongoing business do not change. If you buy a small business, the earnings that it can produce determine what you might be willing to pay for it. The same is true if you purchase a small part of a very large business through its stock. So far, so good. Earning reports for this past quarter will soon start being released. We will see if the positive trend continues. All indications are that they will. Stay steady my friends.

-The Lonely Bull