The Big “E”

Earnings may not be everything, but they are very important in setting a company’s value. Over the past couple of weeks, many public companies have been reporting their results for the last quarter and year. So far, most are excellent. The only negative is that many are cautious in their guidance for the coming quarter and year. This seems realistic given the resurgence of the coronavirus with its omicron variant. No one knows if this will persist, but most feel that the pandemic is easing in the U.S., and we will approach more normal conditions by spring.

We do not yet have a fix on the collective earnings improvement over the previous quarter, but high single digits is a good estimate. That is also the best guess for the average increase over the coming year. This should be good for stock market increases, but interest rates also influence valuations. The higher rates are, the lower the multiple investors are willing to pay for a future stream of earnings. Therefore, the number of rate rises this year are also important.

So far, estimates of three to four .25% interest rate increases this year should not have much impact, and if inflation recedes, markets can have another good year. Those are a few “ifs,” but remember, the consumer is strong. Purchasing patterns are reverting to previous patterns of emphasizing services and taking some pressure from goods pricing, thus making declining inflation a reasonable expectation. We shall see; bond market action seems to agree. Current interest rates have not risen much. The Bull and his partners are monitoring all the factors and will make any necessary adjustments. Stay steady, my friends.

The Lonely Bull