How Sustainable Is Earnings Growth?

Sharing is Caring!

Via Global Macro Monitor,

Not very… and we will leave the calculation for the entire stock market to the stock analysts.

Here’s why:

Just glancing over WalMart’s latest earnings release from the week, we see two one-off macro factors that helped WalMart’s earnings in Q1, and most likely the same for other companies:

  1.  Foreign exchange rate effect
  2.  The tax cut
See also  Banks have had a solid earnings week...but never forget 2008! Look at the size of this bailout list

Note that almost 40 percent of WalMart’s y/y revenue growth in Q1 was due to the exchange effect…

And over 1300 bps of tax cut relief. 

That is one-offs.

Though the dollar was weaker in Q1, it has rebounded sharply in Q2. 

See also  Money Supply Growth in August Slows Again, Returning to “Normal” Levels

Thus a deleterious exchange rate effect is coming to Q2 earnings.

Not to mention higher gas prices and interest rates, which will negatively impact the non-energy and non – financial sectors.


Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.