It’s this week’s inflation data that is probably the headline to focus on, if one is into focusing on headlines. The bond market is currently saying the chances of a September Fed hike are +/-10% but weak inflation data later this week will give a read into the potential of a November hike. File under “coming attractions”.
The single biggest driver of stock prices over time is the direction of corporate earnings. 2Q earnings season is now in the rear window. Earnings fell -4% in 2Q23 but that was less than expected. 2Q earnings per share was $54/sh, or $220/sh run-rate. Earnings have been drifting lower this year on embedded inflation pressures but like inflation itself, those earnings pressures are slowly melting away. Peak inflation was probably spring/summer 2022 and the max drag on earnings of that inflation was probably 2Q23. With nominal economic growth still chugging away and headed higher for 2H23, earnings are likely set to go higher.
“EDSP” = “earnings drive stock prices”
Source: EISI, Factset as of September 11, 2023
Richard Barrett
Chief Investment Officer
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