Business Monday

Back to the fundamentals

People walk by the New York Stock Exchange. The first-quarter earnings season begins in the week ahead. All 11 major stock sectors are expected to report higher earnings compared to a year ago, according to FactSet.
People walk by the New York Stock Exchange. The first-quarter earnings season begins in the week ahead. All 11 major stock sectors are expected to report higher earnings compared to a year ago, according to FactSet. AP file | June 24, 20166

Trump tweets! Trade war! Executive insults!

Enough. In the week ahead, investors should be able to refocus on the fundamentals of business.

There always is a lot of noise in the investment markets. The job of the public markets is to sort through the noise, separating the meaningful from the trivial. Sometimes it happens instantaneously. Often what is deemed as consequential changes as time moves forward.

Profits are fundamental to the markets — current and future expectations. Since making money is central to the capital markets, it can be taken for granted in the short term. After all, even a 90-day profit cycle can seem dated at the speed of the Twitterverse, but long after a tweet has gone stale, profits remain.

It is useful for long-term investors to remember this as the heart of first-quarter earnings season begins in the week ahead. There is nothing special about this earnings period over any other, except that it comes during a more volatile time for stocks. The S&P 500 stock index is on pace this year to have more daily moves of at least 1 percent since 2009.

The latest concerns for investors are real: a trade war with China, military action in Syria. The worries from a few weeks ago were (and still are) real: inflation, higher interest rates.

Yet, first-quarter earnings for S&P 500 companies are expected to grow 17 percent from a year ago. That would be the fastest growth in six years. It is important to note that profit predictions have been growing through the quarter. All 11 major stock sectors are expected to report higher earnings compared to a year ago, according to FactSet. And double-digit profit growth is forecast to continue through the rest of the year,

This year’s chaos has replaced the calm of the past several years in the investment markets. Finding the fundamentals can provide discipline amid the disorder.

Tom Hudson hosts “The Sunshine Economy” on WLRN-FM; @HudsonsView.

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