would have thought lukewarm could be so hot?
it is. The stock market hit record levels four days in a
row this week before pausing Friday. The Standard &
Poor’s 500-stock index is up 5.7 percent for the year
and up more than 200 percent since the scariest days of
the last bear market in March 2009. If you are looking
for the fabulous economic news that took the stock
market out of its recent slump, you won’t find it.
stocks took a turn for the best this week simply because
conditions look better than feared after the Brexit vote
June 23. Now, the latest economic data on the U.S. show
an economy that is OK and some U.S. companies generating
more profits than investors were expecting.
that doesn’t mean the economy is sizzling, or that
companies are on a roll with their profits. In fact, as
analysts look at all the large companies that make up
the S&P 500, they have concluded that profits are
going to decline on average for the quarter that ended a
couple of weeks ago, not climb.
it gets worse than that. The profits companies earn are
expected to decline 5.5 percent for the quarter and
continue a trend of four previous quarters of declines.
hasn’t been such a lousy period for profits since the
third quarter of 2008 through the third quarter of 2009,
according to FactSet. And Adam Parker, of Morgan
Stanley, said in a report this week that with falling
oil prices, a strong dollar and modest global growth, it
appears that the sales U.S. companies generate this year
will barely be above 2013 levels.
investors seemed fine with that. They bought stocks and
consequently pushed the stock market to record highs. It
was proof the market doesn’t need a roaring economy to
climb. Stocks don’t even need soaring profits,
although stock prices are supposed to be based on the
profits companies will be earning in the near future.
there are times when stocks can rise simply because
investors think they are seeing conditions shaping up to
be better than they’ve been seeing.
four straight quarters of declines overall in profits,
analysts are expecting a sharp rebound during the second
half of this year. If it happens, that momentum can
carry stocks higher, but the debate among analysts is
whether there’s more optimism than a slow-moving
economy will provide. Parker has called the general
outlook for revenue in 2017 to be "wildly
the positive side, analysts have been encouraged by
recent strength in the latest jobs report, and retail
sales numbers Friday that suggest Americans are feeling
fine about spending money. Strategist Edward Yardeni
noted in a report that he also likes what he’s seeing
in transportation stocks.
stocks are like a thermometer that takes the temperature
of the economy. Since early 2015, that thermometer has
indicated sickly conditions. Think about trains, planes
and trucks. They carry the stuff that people and
businesses buy, so if transportation stock prices are
plunging, that suggests customers aren’t buying, and
the economy and stock market may be troubled. But
Yardeni notes that the opposite has happened lately.
Since the Brexit vote, the stocks that make up the Dow
Jones Transportation index have climbed 11 percent. They
are up about 19 percent from their January lows.
still doesn’t mean transportation stocks are sitting
pretty. The stocks remain down about 14 percent from the
highs they hit in December 2014. But they are moving in
the right direction now, and better momentum plays out
well with investors. Also improving are banking stocks
since JPMorgan reported earnings that were better than
some analysts are dubious that better earnings are
really the reason why the stock market has been setting
rally in the stock market is not at all
earnings-based," said Gluskin Sheff economist David
Rosenberg in a report to clients Friday. Rather, he
thinks stocks are simply going up because investors don’t
see any other alternative for their money than investing
banks worldwide are keeping interest rates at such
"microscopic" levels that investors are being
driven into stocks if they want to make money, he said.
Eighty percent of the world’s bonds have yields lower
than 1 percent, he said. Only 6 percent have yields more
than 2 percent.