Wednesday, November 4, 2015

Stock Market: Earnings Matter

(Drivebycuriosity) - The US stock market is in on a tear. Since the begin of October the S&P 500, the gauge for the US stock market, gained around 8%. The S&P is now just about 1% below his all-time-high.

The rally seems surprising and counterintuitive in the face of all the pessimist headlines on Bloomberg, Reuters & Co.. But I believe that the media give a wrong picture of the economy.

1. The current earning season came in strong. According to Bloomberg 72% of the companies who reported their Q3 earnings so far beat the predictions of the analysts, one of the best quarters in the recent years (bloomberg). Especially technology companies like Microsoft, Alphabet (former Google) and Amazon plus consumer discretionary sector reported strong profit growth. Companies are benefitting from technological progress and lower energy prices (driveby).

2. The US economy is way stronger than the media tell us. This morning we learned that the US service sector - the engine of the economy - accelerated its growth last month:
"The October ISM Non-manufacturing index was at 59.1%, up from 56.9% in September. The employment index increased in October to 59.2%, up from 58.3% in September. Note: Above 50 indicates expansion, below 50 contraction" (calculate). Consumers are encouraging from the solid job market (weekly jobless claims on 40-years low) and cheaper gasoline.
 3. The global economy is stabilizing. Recently Europe reported better manufacturing & services data and China´s service sector accelerated its growth as well (marketwatch).

I believe that the rally will continue thanks because the recession which many had expected is far away.

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