The week ahead

Tom Hudson: What does the market know that we don’t?

 

Nightly Business Report

Welcome back, 2007. Remember the house-flipping, the easy mortgages and job-hopping? Well, those days are over but the stock market is back to levels last seen five years ago.

Now many Americans are struggling with underwater mortgages, banks have set almost impossibly high home lending standards and millions of workers have simply given up looking for a job out of discouragement. So what’s different since 2007?

Corporate profits have changed. Really changed. After-tax corporate profits are at record levels, totaling almost $2 trillion. That’s a 40 percent increase in five years. Since 2007, companies first focused on cutting costs to survive. They then concentrated on growing their businesses in ways that didn’t require significant investment. As sales have rebounded from the depths of the recession, companies see those dollars drop to their bottom lines.

Five years ago, the companies in the S&P 500 stock index earned almost $83 dollars per share. This year those companies are expected to earn more than $112 dollars per share. In the meantime, investors are paying the same price to own a piece of those profits. One very real impact is the average 401(k) retirement account balance has climbed to new highs.

So this week, with the S&P 500 hovering around a five-year high, it may make a run after its all-time high from October 2007. But while the price level may be similar, what investors are buying is very different.

Tom Hudson is anchor and managing editor of Nightly Business Report, produced by NBR Worldwide and distributed nationally by American Public Television. In South Florida, the show is broadcast at 7 p.m. weekdays on Channel 2. Follow him on Twitter, @HudsonNBR.

Read more Personal Finance stories from the Miami Herald

Miami Herald

Join the
Discussion

The Miami Herald is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere on the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

The Miami Herald uses Facebook's commenting system. You need to log in with a Facebook account in order to comment. If you have questions about commenting with your Facebook account, click here.

Have a news tip? You can send it anonymously. Click here to send us your tip - or - consider joining the Public Insight Network and become a source for The Miami Herald and el Nuevo Herald.

Hide Comments

This affects comments on all stories.

Cancel OK

  • Marketplace

Today's Circulars

  • Quick Job Search

Enter Keyword(s) Enter City Select a State Select a Category