Expectations of higher profits and continued economic growth could be the reason for the continued rise in the stock market.
The earnings reports for the fourth quarter of 2017 show what stock investors were already expecting – that a lower corporate tax rate will probably increase profits. It will also create a wider economy in the new year.
As of Friday, 11% of Standard & Poor’s (S & P) 500 companies released their earnings report, with two-thirds of them reporting higher-than-expected earnings, while other companies reported coming below expectations. Analysts expect earnings growth for 2017 to total 9.5% with a revenue growth of 6.2%. However, investors will remain cautious, especially with the new tax law. According to senior US stock market analysts, under the new tax law, companies plan to spend about a third of revenue on wages or benefits for employees, a third on capital investments, and another third on the buyback of shares. This may have a long-term positive impact on the economy and economic growth.
The Standard & Poor’s 500 Index closed at 2,810 points on Friday, its highest level ever. In 2018, so far, the index already grew by 5%, while in the last 12 months it rose by 24%. All estimates predict that the S&P 500 will grow by 18.6% in 2018, and bringing the share price to $151.55, while revenues are expected to grow by 6% in the same time period. Although this is a quick bubble especially after the endorsement of the tax law, companies are well aware that their earnings growth needs stocks to maintain their upward trend. Some argue that today’s profit growth could turn into losses tomorrow, so it might be difficult to get the same kind of price expansion that last year saw.
79 S & P companies are expected to release their results and earnings reports. The most important of these companies are also part of the Dow Jones index: Johnson & Johnson, Caterpillar, Intel Corp, and General Electric.
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