Historically May is the third worst month for the Dow and
S&P. It’s time to be optimistic about the stock market. If you got out of
the market, at these levels it’s time to get back into the market.
Corporate profits
continue to surprise to the upside, and half way through the earning
season’s first
quarter, seventy percent of the S&P companies have outperformed, beating expectations.
I expect that trend to continue.
Expectations have
been very low, and looking back nine-months ago, the most recent beat is ahead,
but well below the expectations of nine months ago. Don’t expect to see severe
increases in those corporate earnings.
Look for consistent single digit earnings type
momentum. Margins are high, but if we learned anything over this earnings
season, it’s that earnings can continue to remain elevated and consistent.
There has also been top-line growth, which can be expected to continue.
GDP is not growing
the way it has in other recoveries, but it is growing, and margins will
continue or improve. Labor costs here in the U.S. are down about thirty percent
over the last five years. There is also room for capacity utilization two
places pointing to elevated margins for some time.
The balance sheet in
American house holds is stronger than it has been five years ago, and arguably
in the last twenty years. Consumer spending has picked up about four percent
year-over-year, but that spending has dropped. Disposable income is up a bit, so
U.S.
consumers do have some capacity to continue spending. Debt service levels here
in the U.S.
for house holds are at their lowest levels in twenty years.
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Excellent idea
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