By Matthew Kerkhoff
The stock market rises and falls for many reasons, but in the long run, its direction is primarily driven by earnings and interest rates. Stock prices and corporate earnings are positively correlated, while stock prices and interest rates tend to be inversely correlated.
We’ve talked about interest rates ad nauseam; we know the initial rate hike will come when the data supports it, and we know the market will most likely be volatile but that the economy can weather an initial rate hike or two unblemished. Let’s leave the talk about interest rates at that for today, and move on to earnings.
Corporate earnings have a strong tendency to rise in the absence of an economic recession. Last week the fourth quarter real GDP revision reinforced its previous reading at 2.2%. Not fantastic, and certainly a slower pace of expansion than the previous two quarters, but expansion nonetheless.
Even though the economy ... Log in or subscribe to continue reading.