Blog Single Post

The first quarter 2018 earnings season is almost over (444 of the 500 companies in the S&P 500 Index have reported). So far US corporate earnings are up 24.5% compared with the first quarter of last year. In addition, revenues for these same companies are up 9.3%. The stock markets have basically shrugged off the good news. The Dow Jones Industrial Average is essentially flat for the year while the S&P 500 Index has only risen 1.8%.

There are many pros and cons regarding the financial markets going forward. Some of the pros include an unemployment rate which is historically low at 3.9%. Inflation remains below the US Federal Reserve’s target of 2%. Tax rates were lowered in the US and this has contributed over a third of the growth in earnings so far this year and lower rates should help corporate growth going forward. Finally, the US equity markets do not look overvalued at this point. The cons of the financial markets include interest rates continuing to rise (the yield on the 10-year US Treasury Note rose above 3% recently for the first time in years), oil prices continuing to rise, and geopolitical risks, not only here but globally as well.

Corporate earnings in the US are expected to remain strong for the remainder of 2018. While interest rates are rising, they are doing so at a measured rate, thereby mitigating some of the investment risk in fixed income securities. Overall, we are positive about the financial markets for the remainder of the year.