Despite The Washington Sideshow, Stocks Closed At A New All-Time High

Published Friday, May 26, 2017 at: 7:00 AM EDT

While the sideshow in Washington dominated the world stage again for yet another week, the economy deserves rave reviews.

Earnings drive stock prices. Period. It's like financial gravity, and it's how the stock market works. Estimated operating earnings per share on the S&P 500, as of May 8, 2017, was $131.44 in 2017 and $147.10 in 2018. What's that mean?

Over time, the value of the Standard & Poor's 500, the black line, follows the action in the red line, which represents corporate earnings. At the end of the red line showing earnings historically are two dots representing earnings estimates for 2017 and 2018. Earnings - if they come in as estimated - set the path of the black line. To be clear, the black line, if analyst's estimates are correct, will be pulled higher toward the red dots.

While no one can predict the next up or down in the stock market, the earnings estimates puts stock prices - the black line - on a very positive trajectory.

The 2014-15 collapse in oil prices and the 2014-15 surge in the U.S. dollar combined to cause a serious earnings recession. Lower oil prices and commodities crushed profits at U.S. companies in those sectors, hurting earnings for the overall S&P 500 index. However, since the bottom of the earnings recession in December 2015, earnings have snapped back, as shown in the steep 21% trendline. Standard & Poor's Inc., the independent rating agency, forecasts that earnings growth will substantially accelerate from the second quarter of 2017 through the end of 2018.

If Standard & Poor's forecasts are correct, we're in the early innings of an earnings recovery, with profits expected to soar 22% in 2017 over a year earlier, and by another 13% in 2018.

The earnings news drove the Standard & Poor's 500 index 1.4% higher for the week, and it closed Friday at 2415.82, a new all-time high.

While you may be infuriated by the circus in Washington, the U.S. economy has remained the greatest show on earth.

The political crisis in Washington has not stopped the march of the American economy's progress, demonstrating what makes America great.

On this Memorial Day, we are grateful to the members of the U.S. armed forces for their service and sacrifice, and wish you and your family a wonderful holiday weekend.

This article was written by a veteran financial journalist based on data compiled and analyzed by independent economist, Fritz Meyer. While these are sources we believe to be reliable, the information is not intended to be used as financial advice without consulting a professional about your personal situation.

Indices are unmanaged and not available for direct investment. Investments with higher return potential carry greater risk for loss. Past performance is not an indicator of your future results.

2021

    2020

    2019

    2018

    2017

    2016

    2015


    Investment Updates

    • The Bad And Good Financial News This Week 

      Retail sales dropped sharply in December and business-owner optimism plunged but events in the Washington, D.C. overshadowed everything. Yet share prices of America’s blue-chip stocks did not drop very much and the consensus forecast of economists released today predicts a strong recovery for the next

      Read more >>

    • Read More

    Newsletters Sign Up

    Account Login

    Contact Info

    Kohlhepp Investment Advisors, Ltd.
    3655 Route 202, Suite 100
    Doylestown, PA 18902
    Phone: 215-340-5777
    Fax: 215-340-5788
    Email: Info@KohlheppAdvisors.com

    Securities offered through Cambridge Investment Research, Inc. a Registered Broker/Dealer, Member FINRA/SIPC. Investment Advisory Services offered through Kohlhepp Investment Advisors, Ltd., a Registered Investment Advisor. Kohlhepp Investment Advisors, Ltd. and Cambridge Investment Research Advisors, Inc. are not affiliated.

    Due to various state regulations and registration requirements concerning the dissemination of information regarding investment products and services, we are currently required to limit access of the following pages to individuals residing in states where we are currently registered. We are licensed in the following states: AZ, CA, CO, DE, FL, GA, IN, KY, LA, MA, MD, NC, NJ, NY, OR, PA, RI, SC, TX, VA, VT, WA


    Check the background of this firm on FINRA's BrokerCheck