Since the election, the stock market has soared to record high territory. Will the market continue to gain ground through the end of the year? The canary in the coal mine will be corporate earnings season over the next few weeks. Another quarter of strong earnings could help propel an already hot market to even higher levels.
Wall Street analysts are forecasting double-digit earnings growth, with last quarter on track to be the best since the fourth quarter of 2011. One factor helping U.S. companies has been the weakening of the dollar which has made U.S. products more price competitive overseas. Also helping is that the overall global economy has strengthened. These conditions should translate into more earnings power for U.S. corporations.
Whereas earlier in the year, the market was trading up on the Trump agenda and the prospect of deregulation and tax reform, those hopes have been tabled in favor of strong company fundamentals. Pending items on the political agenda would be a bonus, but are not a current requirement for growth.
Energy, technology, and financial companies are expected to demonstrate the best year-over-year earnings growth, while the prospects for telecom, consumer discretionary (especially traditional retail), and utilities are projected to be the weakest.
The current economic environment remains ideal for stocks with no signs of recession or inflation. We are in what many economists would describe as a “Goldilocks” period that is not too hot, not too cold, but just right. Despite two interest rate increases this year, the economy appears to have digested them just fine. As usual, clients should stay focused on the long-term, but for now, go ahead and enjoy your porridge.