Market Comment – Mind the earnings

Traders were worried again last week, as US inflation figures came in higher than expected, suggesting the possibility of steep interest rate hikes. With heightened volatility, a very good US earnings quarter went almost unnoticed. With the reporting season almost over, 75% of companies beat earnings estimates and 78% beat sales estimates. This is the highest since 2008, according to Factset, an earnings aggregator. Overall earnings are projected to grow near 15.2%, the highest figure since 2011. Meanwhile, the global economy is still robust, even if growth rates are decelerating slightly. While the market is obsessing about central banks, it should be remembered that fundamentals are still good. Central banks might be crucial to financial markets, however robust fundamentals mean that it will take a severe and unpredicted crisis in faith for the cycle to end abruptly.

David Baker – CIO