Is The Stock Market Crazy? No, Just Following Surging Profits, As Always

IBD ^ | 08/02/2017

[SeekAndFind]

For months now, many investors and Wall Street analysts have wondered how the major stock market indexes can keep climbing higher into record territory when the economy is growing at a slow 2% pace. But it's really no mystery: Profits, the fuel for rising stock prices, are growing.

Make no mistake, earnings are strong right now. Quoting FactSet, the Wall Street Journal reported Monday that 73% of the S&P 500 companies that had reported earnings as of last week had posted results that exceeded forecasts for both revenues and earnings.

Earnings for S&P 500 companies rose 15% in the first quarter and are likely to grow at double-digits again in the second quarter, based on incoming data, the fastest growth in six years.

This is not an accident or fluke.

New products continue to emerge from the tech industry, many based on entirely new technologies. Meanwhile, whole new industries, such as the "Gig Economy" of Uber, Lyft, Air BnB and others, not to mention fracking, have sprung up nearly overnight.

Yet, there may be one other major reason for rising earnings.

In recent months, despite the ongoing political chaos and drama of the Trump White House, the new president has started the U.S. down a path toward potentially substantial economic growth.

Yes, GDP growth at 2.6% in the second quarter is still slow. Some have even been so bold to suggest that this shows the markets are in the grips of a kind of mania, since, they argue, stock prices keep rising above all conventional gauges that suggest caution is in order.

As Shawn Tully of Fortune Magazine recently correctly noted, "corporate profits have averaged 7.5% of GDP since 1951. Today, they absorb 9.2% of national income. How about margins? They're lofty as well.

[cgbg]

When I put money in the stock market—then it will crash.

For now you are safe.. :-)

[sheehan]

Trump shouldn’t trust the globalist and corrupt Fed.... if this crashes (and this looks to be tee’d up this way), Trump will get 100% of the blame from the asshole media.

[Jarhead9297]

Know how they are producing these profits? Job slashing and placing your job in a 3rd world sh!thole. How do I know? Because I am one recently displaced after 15 years

[Pearls Before Swine]

When I put money in the stock market—then it will crash.

Could you let us know, right before you do?

Thanks.

[packrat35]

Please stay out of the market for now!

[GOPJ]

Liberal elites have been putting out ‘the word’ that the market’s going to crash BECAUSE THEY’D RATHER HAVE IT CRASH THAN ALLOW TRUMP ‘THE WIN’.

ONE MORE REASON TO HATE LIBERAL ELITE DEMOCRATS AND THE VICTIM GROUPS THAT PROP THEM UP.

[Sam Gamgee]

Don't trust it. Not convinced these are not “pro-forma” earnings, meaning they are doing dirty tricks to show them. Also think some PE ratios are getting outrageous. And for the NASDAQ to be doing so well, that scares me. Look at Amazons’s and Netflix PE ratios well into the 100s.