Stock Market Insights: No visible cracks

DR. RICHARD BAKER, AIF®, is the founder of and an executive wealth advisor at Fervent Wealth Management. https://www. facebook.com/Dr.RichardBaker

A major crack appeared in a roller coaster’s support beam last month. The tallest roller coaster in North America was shut down after a dad watched his kids ride it and noticed a cracked support beam.

Cracks are signs of future calamity, but thankfully this earnings season shows no visible cracks in the market.

This quarter’s earnings reporting season is mostly behind us, with about 85% of S&P 500 companies having reported their results. There weren’t any rock-star results that said stocks were about to jump, but the numbers were good enough to lessen the chance of a big downturn.

Here are a couple of my takeaways from this earnings season:

1. Company earnings (profits) have probably hit their lows for this cycle. With 424 of the S&P 500 companies having reported results, 80% beat their projections. This past April, May and June will probably mark the low point for this earnings cycle.

2. Profit margins have been surprisingly stable this year so far. Coming into earnings season, I was concerned about how the companies in the market would continue to make money while overall sales went down. They provided value to their stockholders by keeping costs down enough to stay profitable.

So while this past quarter’s earnings results were better than most expected, I don’t see stocks going on a run in the next month or two. However, I am encouraged by the numbers. The economy might slow some in the second half of this year, but I also wouldn’t be surprised if the market climbed because the economy continues to exceed expectations.

For example, this month’s CPI inflation report and this week’s jobless claims report were both good enough to make the market think that the Federal Reserve won’t raise interest rates in September. The market also thinks the Fed might lower rates in a few months. A Fed pause in September would be good for bonds and is a good reason for long-term investors to stay fully invested.

I’m a roller coaster guy, but this story about the crack brought back every fear I had about the Screamin’ Eagle coaster in the ‘90s. The strange thing about that crack in the roller coaster was that it had been there for ten days before the dad took the video of the beam swaying. With investments or anything else important, you need a good team to watch for cracks.

Have a blessed week!

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