Equity prices have stabilized as corporate earnings season has gotten under way. Is it sustainable or just smoke in mirrors like a clever ad from the 60’s?
Corporate earnings are barely underway, but with 17% of S&P 500 companies reporting, earnings are projecting at a rate of 18.3% growth, according to MFS Investment Management. This growth rate is extraordinarily high, however, in line with expectations. The drastic increase in earnings have come as a result of tax reform. The hope is that the cost savings generated by tax reform will translate into investment in innovation and jobs.
Geo-political risks were tame this week as there was no response to the bombing in Syria. Russia had vowed that there would be some consequences, but none came this last week. In addition, commodities rose as middle east tensions increased fears of a potential oil supply disruption. Things progressed in preparation of a summit with North Korea as they announced a willingness to suspend missile tests until after the summit with the US.
Volatility, as measured by the VIX, fell last week from 18 to 16.5. This corporate earnings season will give us positive data to look forward to over the next several weeks, hopefully pushing the VIX even lower. The calm of geo-political risks this past week is likely temporary. While earnings will sustain market growth, the nerves caused by geo-political tensions, will bring a fair share of market swings along the way.
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