Corporate Earnings.

Q2 corporate earnings have begun to come out in earnest. While expectations have been lowered heading in, it seems that the markets are already looking to the future rather than worrying about this earnings crop. Remember that the markets are a forecasting mechanism, focusing more on the future than the present or past. Rather than dwelling on the lowered earnings expectations for this most recent quarter, investors’ minds remain squarely on jobs, inflation, interest rates and consumer spending.

Second quarter GDP.

The economy continued its strong showing in 2023 with solid GDP growth, despite consistent calls for recession. It increasingly looks as if we may end up with the unicorn scenario of Federal Reserve monetary policy – the soft landing. Nothing is set in stone just yet, but the probability of a soft landing outcome is increasing, as a 2023 recession is appearing increasingly less likely.

A soapbox side note…

Despite positive economic news coming in (US GDP, inflation, jobs) and positive equity markets so far this year, predictions of economic Armageddon continue to proliferate. What gives? Why are so many people refusing to believe that the economy is navigating the higher interest rates and the challenge of inflation extremely well thus far?

As with many a topic these days, it apparently comes down to politics. People’s perceptions on the economy are significantly clouded by whether their preferred political party is in the driver’s seat at the White House. 

It is important to remember that changes to fiscal and monetary policies tend to operate on significant lags. Meaning? The present state of the economy is not always the result of the actions of the current administration, which is why credit-taking when things are good/finger-pointing when things are bad is so common.

My suggestion? Look at the data objectively and come to your own conclusions. Sure, there is always an exception to most any rule, but is the exception really the norm? Usually, no. Be curious, ask questions, and be open minded to the possibility that when the data looks positive or negative, it may be as simple as that.