Recently we have been discussing a variety of factors affecting the markets. These factors have included oil prices, the international economy, terrorism, inflation, job growth and more. When there are so many other important things going on around us, sometimes we neglect to focus upon factors which are not a major explosion, but give us a good reading as to the direction of the economy and the markets. That is why this week we are talking about corporate profits.
Our first quarter has ended and major companies have been reporting their profits for several days now. Corporate earnings growth fell throughout 2015. It is no coincidence that the stock market rally stalled last year and interest rates stayed lower than we expected. Stocks were volatile in the first quarter of this year, but by the end of the quarter, things were pretty much where they were for the past year -- which is flat. And rates are still lower than expected.
Certainly corporate profits are a function of the economy and we expect a stronger economy to boost profits. Thus, the first quarter's earnings reports are being watched carefully in this regard. The price of commodities, especially oil, has really hurt profits in the energy sector. You can see how inflation, the economy and all of these factors are intertwined. Thus when the Fed meets next week, they will also have a fresh batch of data in the form of earnings reports. And if these reports continue to be weak, there will be less chance of a rate increase. It is not the only factor, but certainly one to watch this month.
Mike Ervin
NMLS # 282715mike@mikeervin.com
www.mikeervin.com
(650) 766-8500
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