Earnings tend to be a good indicator of employment, which drives income and consumer spending and becomes a virtuous cycle.
The third quarter earnings season is underway, and the signs are pointing to continued economic growth and steady earnings gains into 2019. In this week’s podcasts, LPL Financial’s research strategists discuss the positive factors that are outweighing any potentially damaging economic hits due to tariffs and other issues.
The initial read on third quarter GDP will be reported on Friday, October 26, and consensus forecasts (Federal Reserve Bank of Philadelphia and Haver Analytics) are calling for an annualized increase in the low three percent range. With solid consumer spending trends and support from the past year’s fiscal stimulus, a favorable third quarter economic growth trajectory should continue through the end of the year and into the next.
As the LPL research strategists note, a good economy has positive implications for corporate profits and stress that, over time, can be the biggest driver behind stock prices.
Tune into the full LPL Financial Market Signals podcast to learn more about why LPL’s research strategists see the U.S. economy picking up speed.
GDP growth including inflation, or nominal GDP, has historically correlated well to corporate revenue. With the U.S. economy growing solidly and accelerating, we believe the intermediate term earnings outlook is bright.
Healthy consumer spending should provide solid base for GDP growth in the third quarter. Trade tensions and extreme weather may cause distortions in the data.
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