Tame Inflation vs. Soft Earnings

Today’s earnings reports are not exactly reassuring, but the economic news remains favorable. As such, stocks will likely struggle for direction. Next week’s earnings reports will give us a bettter flavor of what to expect this earnings season.

Bank of America’s (BAC) weaker than expected results wasn’t that much of a disappointment given what we had seen from J.P. Morgan (JPM) the other day. Improving credit quality is enabling banks to set aside fewer amounts to cover losses, but the core business of making loans remains anemic.

Google’s (GOOG) earnings miss was a bigger disappointment. But given the company’s unique position and business, it is hard to extrapolate the search giant’s results to other players in the tech world. There may actually be some basis to their claim that the higher expenses are essentially investments in new growth areas. But an earnings miss is nevertheless negative surprise.

The day’s economic reports – the CPI report and Empire State survey – are quite good. The CPI report for March was a lot more benign, both on the headline and core basis, than what we had seen in the PPI report yesterday or the import prices report last week. This should help allay some of the inflation concerns, enabling the Fed to sustain a favorable monetary policy longer than would otherwise by possible.

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About Sheraz Mian 45 Articles

Affiliation: Zacks Investment Research

Sheraz Mian is the Director of Research for Zacks.com.

Visit: Zacks Investment Research

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