The Economy, Interest Rates, Earnings And The Markets

The global economy did not stop dead in its tracks after Brexit as many pundits had predicted. Earnings reported so far for the second quarter and the outlook for the rest of the year appear surprisingly strong. No surprise to us. Interest rates remain low everywhere therefore the combination with higher earnings has resulted with a stock market continuing its upward path to new highs. It does not hurt that the flow of funds from abroad keeps our yield curve flatter than it ordinarily would be at this point in the economic cycle. The dollar, too, has been a beneficiary of the flow of funds from abroad and a strengthening U.S. economy. I have heard what all the naysayers continue to say about the market. Many who have predicted a difficult/down year for months are now calling for a summer correction of 6+%, including my former partner Byron Wien. I don’t think that they realize how strong underlining S&P earnings currently are and that earnings growth will accelerate over the next few quarters as volume improves resulting in positive operating leverage.

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