Big US companies see profits rocket

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08/06/2018 | 03:28 pm
More than 80% of the companies in the S&P 500 have now reported their results for the April to June period, with upbeat earnings.
America’s big businesses are reporting some of the strongest profit growth since the start of the financial crisis, on the back of lower tax rates and a healthy US economy. The profit of S&P companies soared by a whopping 24.2% in the second quarter, according to new data from Thomson Reuters. This surpasses the growth of revenues by more than 2.5 times (9.2%).

The lower taxes have had the biggest impact on earnings. Last year, the US cut its corporate tax rate to 21% from 35%, which has allowed companies to make big savings. The fact that in the second quarter, the US economy grew at its fastest annual rate in nearly four years, also helped. Its growth reached 4.1%, while the official forecast was 2.2% .

In addition, many businesses have raised their prices: "companies are coming out unapologetically with pricing increases," said Jim Russell, portfolio manager at Bahl & Gaynor, quoted by the Wall Street Journal. "That is one of the more optimistic things we see for keeping [profit] margins high in 2018 and into 2019."

He believes that the companies will also continue to reap the benefits from the tax package over the next months, with profits staying strong even if revenues slow down.

The strong earnings – that are well-ahead of expectations - are fueling the confidence of investors and driving stock markets up. The Dow and the S&P have now been rising for 5 weeks in a row - the longest consecutive period since the start of the year.

This data from Thomson Reuters comes after another positive jobs report published on Friday. The unemployment rate in the US fell to 3.9%, while wage growth remained stable at a 2.7% year-over-year pace.

This is all good news for investors. There is no doubt this is a great time for stock markets, and their rally is likely to continue in the coming weeks.
Romain Fournier
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