Is The Stock Market Crazy? No, Just Following Surging Profits, As Always

[SirLinksALot]

SOURCE: INVESTORS BUSINESS DAILY

URL: http://www.investors.com/politics/editorials/is-the-stock-market-crazy-no-just-following-surging-profits-as-always/


For months now, many investors and Wall Street analysts have wondered how the major stock market indexes can keep climbing higher into record territory when the economy is growing at a slow 2% pace. But it's really no mystery: Profits, the fuel for rising stock prices, are growing.

Make no mistake, earnings are strong right now. Quoting FactSet, the Wall Street Journal reported Monday that 73% of the S&P 500 companies that had reported earnings as of last week had posted results that exceeded forecasts for both revenues and earnings.

Earnings for S&P 500 companies rose 15% in the first quarter and are likely to grow at double-digits again in the second quarter, based on incoming data, the fastest growth in six years.

This is not an accident or fluke.

New products continue to emerge from the tech industry, many based on entirely new technologies. Meanwhile, whole new industries, such as the "Gig Economy" of Uber, Lyft, Air BnB and others, not to mention fracking, have sprung up nearly overnight.

Yet, there may be one other major reason for rising earnings.

In recent months, despite the ongoing political chaos and drama of the Trump White House, the new president has started the U.S. down a path toward potentially substantial economic growth.

Yes, GDP growth at 2.6% in the second quarter is still slow. Some have even been so bold to suggest that this shows the markets are in the grips of a kind of mania, since, they argue, stock prices keep rising above all conventional gauges that suggest caution is in order.

As Shawn Tully of Fortune Magazine recently correctly noted, "corporate profits have averaged 7.5% of GDP since 1951. Today, they absorb 9.2% of national income. How about margins? They're lofty as well.

For the Fortune 500, the ratio of profits to sales was 7.4% in 2016, more than 2 points higher than the average," and the fourth highest ever.

OK. But maybe, just maybe, the rising profits and the stock market are telling us more about the future than the slow GDP data are telling us.

(Excerpt) Read more at investors.com ...

[Free Vulcan]

Still, I wish this market would get a haircut of 20% or so, but I don't see it happening.

[thackney]

Still, I wish this market would get a haircut of 20% or so, but I don't see it happening.

Let me convert stocks to cash first, please...

I'll buy back in quickly thereafter.