The Financial Landscape: U.S. Has an Economic Spilt Personality
Let The Good Times Roll?:
Profits Thrive In Weak Recovery, declared The Wall Street Journal in a front-page headline Monday: "While the U.S. economy staggers through one of its slowest recoveries since the Great Depression, American companies are poised to report strong earnings for the second quarter -- exposing a dichotomy between corporate performance and the overall health of the economy." Although the recession officially ended two years ago, economic indicators like unemployment, bank lending, and home prices still look grim. Corporate earnings, on the other hand, are shaping up quite handsomely -- the total profits of S&P 500 companies "are projected to rise 13.6% from a year ago for the second corner," the Journal reports. Reasons given for this state of affairs include "demand from emerging markets" and, more irksomely, "cost cutting during the recession," which "helped improve productivity and profitability."
Still, the corporate party may not last. The article ends on an ominous note, speaking of "dark clouds ... already on the horizon," such as rising raw material prices and continuing efforts by Americans to reduce their debt loads and keep down spending.
Or Hard Times All Over?: On that note, The New York Timescompletely contradicts the Journal's projections, arguing that "a string of second-quarter corporate earnings announcements due over the next few weeks could confirm that companies are beginning to have a harder time":
Higher gas prices are soaking up already weak consumer spending, banks are struggling and labor costs may be starting to pick up, squeezing business's profit margins meaningfully for the first time.
The Times hints at consequent trouble ahead for the stock market, that other bright spot in an otherwise dim economic universe. Yet the article acknowledges conflicting predictions, quoting an equity strategist at JPMorgan (JPM) as saying, "We are going to get good news out of the corporate sector and markets can move higher," and noting last week's 5.4% rise in the Dow, which was "one of its strongest weeks in two years."
The FT presents a raft of eurozone-related news: Finance ministers will meet in Paris on Wednesday "to consider a sweetened rollover plan which will ease [the] burden on Greece;" several German economists and a legislator are challenging the constitutionality of the European rescue policy in the country's highest court; and renewed jitters over Greece have irritated world markets, sending the euro down 0.5% and lifting the dollar and 10-year Treasury yields. (Finland, too, is beginning to balk at eurozone policy: Citing Reuters, the FT reports "that it wants guarantees against participation in any new bailouts in the bloc and wants to see investors share more of the burden.")
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