How Sustainable Is Earnings Growth?

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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
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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. 

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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.

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