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July 05, 2018 at 12:21 PM
One of the biggest casualties of the tariff war has been the power of corporate profits to energize stocks. Now another earnings season is at hand, and not even that can keep investors from obsessing over trade.
It’s the story of the market in 2018. U.S. companies are posting the best results in a decade, and the S&P 500 has derived almost no real-time benefit. More frustration played out in the second quarter, when the benchmark climbed a scant 2.9 percent even as profits increased seven times as fast.
(See Related Story: Trump to Pull Tariff Trigger At Midnight in Trade Conflict With China)
“We spent five years in an environment when stock prices moved faster than the earnings growth, a trend that came to a halt,” said Matt Maley, a strategist at Miller Tabak. “You can add to that a really strong headwind that became pronounced in the second quarter: trade. We need guidance to continue to be really good because so many other things aren’t.”
You hear it every season: don’t worry about about the past, pay attention to the future. In a market whose every effort to right itself has been squelched by a Donald Trump trade tweet, the advice has rarely been more relevant.
Going by the numbers, it will be another huge crop. S&P 500 companies are expected to say income rose 20 percent from a year ago, only slightly less than the January-March period, which saw the fastest growth in seven years. Add the standard beat margin and the final numbers could easily be just as good.
