The Most Important News to Listen to—It’s the Real Deal
04.08.2011 | Author: profitconfidential
I still feel that the most important news investors should be listening to is from corporations themselves. They are the enterprises, not government, and therefore they are the drivers of earnings growth. The fact of the matter is that we are in the age of austerity, and we deserve to be. All the excesses of the past have created the slow economic environment of the present. Investors’ concern about government cuts to spending is a worry that’s misplaced. The economy shouldn’t be based on government spending and stimulus; that’s up to individuals and entrepreneurs.
Just like last year, big corporations are saying that earnings are solid, and the expectation is for further improvement in the bottom half of this year. Many Wall Street analysts are increasing their earnings expectations for S&P 500 companies this year and next, and, based on those expectations, the stock market is looking very reasonably priced at this time.
No doubt, the sovereign debt issue in Europe and the debt-ceiling negotiations in the U.S. were confidence killers. Add in some weaker economic news and you can easily see why the stock market retreated. But I think this market has a real resiliency to it and there’s a good chance that it won’t break down. If this were to happen, it would go against what corporations are saying about their businesses.
There is one important factor that investors need to keep in the back of their minds. What matters most in capital markets is the numbers. Unfortunately, people don’t particularly count. What I’m getting at is that the stock market can tolerate persistently weak employment numbers if corporate earnings are growing. If employment was improving and so was the housing market, then I have no doubt we would be in a full-blown bull market right now. As this is not the case, I think the market will hold together and tick higher modestly as long as the earnings growth is there. All that really matters in the equity market are earnings and this news so far is promising.
There is one big reason why I think corporate earnings can keep growing even if growth in the domestic economy grinds to a halt. It’s the dollar—a weaker dollar that should persist for several years to come. A weaker dollar is the biggest gift to domestic exporters and large-cap multinationals, because the earnings abroad translate into bigger earnings at home as the dollar falls relative to foreign currencies. The U.S. Dollar Index, which measures the value of the U.S. dollar compared to a basket of the world’s main currencies, has bounced around quite a bit over the last three years. However, since the beginning of 2010, it has been in a significant decline. The near-term trend for this index looks intact and this is good news for corporations.
As I say, there are plenty of potential shocks out there and investor confidence is already low. With a little bit of stability on the confidence front, I see corporate earnings swaying investor sentiment going into the fourth quarter. Stocks should be able to advance based on earnings news alone. |
发表于 2011-8-4 23:30
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谢谢老何