Pay Attention to Corporate Earnings and a “Goldilocks Economy”

Pay Attention to Corporate Earnings and a “Goldilocks Economy”

For most of 2014, the market has been able to shrug off the unsettling news coming out of Ukraine and now out of Gaza. U.S. corporate earnings for the second quarter ending June 30 were 5.6% higher than the second quarter in 2013. The 5.6% earnings growth rate reflects a slower pace, but there are positive aspects to slow and steady growth. The description “Goldilocks Economy” is beginning to reappear in the business press, a reference to an economy that is neither too hot nor too cold, but just right for sustainable growth.

This steadiness in earnings growth in this so-called “Goldilocks Economy” has a parallel trend in jobs growth. July 2014 was the first time since 1997 that 200,000 or more jobs were added for the past six months in a row. This confidence and momentum is now drawing more people back into the job market. The Wall Street Journal reports that 141,000 people re-entered the job market in July because now they see evidence that they could become employed again.

These positive trends have enough wind at their back that consumer spending could produce continued steady growth in earnings, and business is showing more confidence with increased capital expenditures. Although international tensions caused one of the worst weeks for investors in a long time, the core momentum driving corporate earnings will not be turned back easily.

Not long ago, there was great fear and anxiety about the Fed beginning to taper its bond buying program. The expectation was that once the Fed began to taper, the market would sell off dramatically. The Fed has been tapering its bond buying now for several months, and corporate earnings and the market took it in stride. Beneath the horrible international drama, there is a steadiness to our economy that deserves our focus and attention.

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