Shouts that American corporate profits won’t be cut anytime soon.
Someone forgot to tell American companies that the stance of monetary policy is restrictive.
Chairman of the Federal Reserve Board Jerome Powell Last week, he reiterated his view that current interest rates are restrictive, meaning they suppress economic activity and that he believes inflation should be contained. Looking at corporate earnings reports in recent weeks, this position is becoming increasingly difficult to defend.
By the end of last week, about 400 companies in the S&P 500 had announced their quarterly results. It has been a season of continued good news coverage.. Total earnings per share beat expectations by about 2%, Bank of America analysts said. Excluding Bristol-Myers Squibb, which suffered a net loss for the quarter thanks to recently completed acquisitions, profits beat expectations by 5%. Compared to a year ago, profits for S&P 500 companies are up about 5%.
Bank of America says: 72% of S&P 500 companies report higher-than-expected earnings. In sales he was 59% better. Both are half wins. Bank of America said all sectors except health care beat expectations.
Eight of the S&P’s 11 sectors collectively posted year-over-year gains, with health care, energy and materials down. Consumer discretionary benefits increased by 24% Compared to a year ago, sales increased by 5.7%. Profits in communications services, which mostly include streaming and social media companies, rose 38.6% and revenue rose 7%.
Companies also offer more services bright guidance This year started off in a bad way. General Motors, for example, increased its profit forecast for this year by $500 million to $12.5 billion to $14.5 billion.
Increased profits, increased employment, increased inflation
This is not what restrictive monetary policy would be expected to produce.On the contrary, it seems that we are experiencing some kind of Expected earnings season due to accommodative monetary policy. At least the first quarter results show that monetary policy is not that restrictive.
Perhaps more importantly, Rising profits are likely to undermine monetary policy. Companies that are inundated with demand and profits are expanding their investments and salaries. In a healthy economy, profits stimulate demand, which in turn creates profits, creating a virtuous cycle. In an inflationary economy, this is the secret to rising prices.
The stock market reflects this. The S&P 500 is up nearly 9% year-to-date. It is less than 3% from its all-time high. Volatility, as measured by the VIX index, has fallen to boom-time levels of around 14. The spread between junk bond yields and Treasury yields is the narrowest in decades.
All of these indicate that the economy is not being held back by monetary policy, and at the same time are forces that are actually easing financial conditions. Higher stock prices, lower debt costs, and lower volatility make it easier for companies to raise funds for expansion.and they send A signal that better times are aheadencourages business owners to pursue opportunities created by easing financial conditions.
Federal Reserve Chairman Jerome Powell announced at a press conference after the Federal Open Market Committee meeting to be held in Washington, D.C., on May 1, 2024, that interest rates will remain unchanged. (Chip Somodevilla/Getty Images)
Companies are hiring rapidly. Even taking into account the lower-than-expected April payrolls, the three-month average of job growth is 241,000, and the 12-month average is 242,000. This is not only a driver of economic growth, but also a sign of confidence in the company’s future. Employment is at the heart of retail sales Just as profits are the key to economic growth. As long as employment remains strong, sales are likely to remain strong, which should boost profits and, in turn, generate growth.
There have been concerns recently about the job market. Turnover In the Job Openings and Labor Turnover Survey (JOLTS). This is a return to historically normal levels, leading some to wonder if the labor market is softer than the high level of non-farm employment growth and low unemployment rates suggest. There is. I think there’s a better explanation. Lock-in effect on mortgage interest rates. This makes moving for new jobs very expensive and inhibits labor mobility. Therefore, the fact that turnover is close to normal levels, even as residential mobility is dragged down by lock-in effects, indicates a tight market.
Corporate profits are strong, consumer spending remains strong, and the labor market remains extremely tight. No wonder Mr. Powell and his fellow Fed officials are sending the message that rate cuts aren’t coming anytime soon.
