Business

In the week ahead, look for a return to economic fundamentals

The American flag flies above the Wall Street entrance to the New York Stock Exchange. In the week ahead, as companies continue reporting their quarterly financial results and make predictions about the future, investors will be pressed to separate profit expectations from political volatility.
The American flag flies above the Wall Street entrance to the New York Stock Exchange. In the week ahead, as companies continue reporting their quarterly financial results and make predictions about the future, investors will be pressed to separate profit expectations from political volatility. AP/File, Nov. 13, 2015

Investing is a balance of hope and fear. Since Election Day, investors have been hoping for strong corporate profit growth helped by new economic policies from President Donald Trump. Those expectations have led to the Dow Jones Industrial Average trading above 20,000 for the first time and a 9 percent jump in the S&P 500 stock index.

Except for some end-of-year profit taking it has been a steady climb higher in stock prices.

That progression paused as the new administration settled in but stirred up controversy over immigration, foreign relations and international trade. Certainly, there was real economic news for the markets to absorb. The Federal Reserve held firm on interest rates but signaled rates could go higher later this year, job growth continued in January, and Apple — the most widely owned stock — reported better than expected financial results.

Still, the broad stock market marked time. It may seem reasonable to attribute stock market activity to politics, but an investment portfolio is not necessarily a partisan expression.

Presidents don’t control the market. They certainly can influence the overall environment in which company executives and consumers make financial decisions but economic and business fundamentals ultimately are responsible for long-term trends for investors.

In the week ahead, as companies continue reporting their quarterly financial results and make predictions about the future, investors will be pressed to separate profit expectations from political volatility.

Financial journalist Tom Hudson hosts “The Sunshine Economy” on WLRN-FM in Miami. Follow him on Twitter @HudsonsView.

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