Corporate Earnings Continue to Excel

By: Mike Earl

Media headlines focus on the news of the day. The key word there is "day". These are typically issues that will cause a firestorm for a brief period of time, and then go off into the dustbin of history. Fine, let them cause a ruckus.

Sure, sometimes the news of the day can stretch out to become news of the week. But really, most of the media attention is focused on issues that are here today and gone tomorrow.

When it comes to being a long-term investor, we tend to ignore the headlines and focus on the data. If companies in the US are growing their profits, the stock market will generally rise along with those profits. It's not always a perfect correlation, but the correlation is strong over the long haul.

There is a lot of skepticism of the current stock market rally. And skepticism of the market is actually a positive thing. Market skepticism is known as a "contrarian indicator" of stock market health. If everyone was exuberant about the market, that would be a potential cause for concern.

Some clients ask us if the current stock market rally is simply a "Trump Rally". Our opinion is that no, this rally is most emphatically not driven by irrational optimism about the effects of the Trump Administration.

The data shows that US companies continue to grow earnings at an impressive clip:

Overall corporate earnings grwoth over 10% for Quarter 2 of 2017.

As we zoom out to see the longer-term trend in earnings, we realize just how far the US economy has come since the Financial Crisis:

The rising corporate profits in the US lend credence to the current stock market rally.

Views expressed in this article are the current opinion of the author, but not necessarily those of Raymond James. The author's opinions are subject to change without notice. Information contained in this article was received from sources believed to be reliable, but accuracy is not guaranteed. Past performance is not indicative of future results. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. The S&P 500 is an unmanaged index of 500 widely held stocks. It is not possible to invest directly in an index.