Simply Money

Simply Money

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Economic growth pulls back, yet earnings remain strong

Corporate earnings will again be the most important item for Wall Street this week.

So far, earnings have been very strong with 86 large-cap companies having reported profit growth of 25% and sales growth of 10% when compared to 2017's first quarter.

For all of 2018, earnings are expected to grow about 17% thanks mostly to a growing economy and tax reform. There are an additional 176 large-cap companies reporting this week, including Amazon, Alphabet (formerly Google), Facebook, Microsoft, and Fifth Third.

The other big event Wall Street will be watching this week is the report card for the U.S. economy – Gross Domestic Product (GDP) growth. Economists expect economic growth to have pulled back to 2.0% in the first three months of the year from the average growth of 3.1% in the prior three quarters.

One of the main reasons for the slower, but still positive, growth is that you, the consumer, didn’t increase your spending. This is because you spent more than usual during the last three months of 2017 thanks to post-hurricane spending and a strong holiday shopping season.

The slower first-quarter growth is nothing new, though. Since the Great Recession ended in July 2009, economic growth has averaged 1.2% in the first quarter while the other three quarters have averaged 2.5%.

The Simply Money Point

Moving forward, continued stock market turbulence should be expected. Higher interest rates and possible continued trade tensions with China could contribute to uncertainty in the stock market.

Despite these short-term concerns, long-term investors should take note of the low recession risk and growing earnings, which should help lift stocks in the months ahead.

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