Vail Daily column: Earnings season was a good one
May 19, 2017
Another earnings season is in the books and it was a good one. With more than 90 percent of S&P 500 companies having reported first quarter 2017 results, S&P 500 earnings are tracking to a solid year-over-year increase of more than 14 percent (Thomson Reuters data). That mark, should it stand throughout the remainder of reporting season, would represent the best pace of earnings growth since the third quarter of 2011.
Further, outlooks from corporate management teams have generally been upbeat. Corporate America's ability to produce strong profits despite sub-par economic growth has been impressive, providing a solid backdrop for stocks and economically sensitive bonds.
The story is similar overseas, where improving earnings have provided support for solid gains in international developed and emerging market equities, ahead of the major U.S. equity benchmarks. Overseas markets have also garnered support from the market-friendly outcome of the recent election in France, although political risks in Europe remain with the Brexit process ongoing and German and Italian elections on the calendar for later this year and early 2018.
Like stocks, bonds have generally rewarded investors so far in 2017. The bond market has garnered support from several factors, including the latest soft patch of U.S. economic data, tempered policy optimism in Washington, D.C., global central bank actions, and related low interest rates overseas. A move higher in rates is still very much on the table for this year, as economic growth is expected to improve, though any increase may be gradual depending on what fiscal stimulus is enacted.
Though further gains in the bond market in 2017 may be muted, high-quality fixed income can still play an important role in portfolios as a diversifier and to help manage risk. Policy developments remain important to watch as they can impact spending and investment decisions by consumers and businesses as well as corporate profits.
During late April, the Trump administration put out a high-level tax proposal, setting the stage for the corporate tax reform debate to begin in earnest early this summer (timing depends on what the Senate does with healthcare reform); meanwhile, Congress averted a shutdown and came to an agreement to fund the government through September. The Federal Reserve's June 14 meeting is the next major event on the domestic policy calendar.
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Looking ahead, stocks will have their ups and downs, as they always do, but improved corporate profits provide a solid foundation for potential further gains despite the U.S. economy's slow start to the year. The global economic picture has improved. Although bond returns may be muted over the balance of the year, high-quality fixed income remains an important part of diversified portfolios.
Of course, policy and geopolitical risks should be monitored, but at this point have had only marginal impact on the market's fundamentals. We encourage you to stick to your long-term plan.
Tracy Tutag, CFP® CDFA™ and Stuart Green CFP® MBA, are Principals of Aprisent Financial Group, Riverwalk, Edwards, 970-926-6911. Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Western Wealth Management, a registered investment advisor. Aprisent Financial Group and Western Wealth Management are separate entities from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly.
Economic forecasts set forth may not develop as predicted.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values and yields will decline as interest rates rise, and bonds are subject to availability and change in price. Investing in specialty market and sectors carries additional risks such as economic, political, or regulatory developments that may affect many or all issuers in that sector. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, geopolitical events, and regulatory developments. The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
This research material has been prepared by LPL Financial LLC. Securities offered through LPL Financial LLC. Member FINRA/SIPC.
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