The Wall Street Journal reports that
“America’s biggest companies are reporting some of the strongest earnings growth since the recession, boosted by lowered tax rates and a robust U.S. economy that is fueling demand across industries.
“Profits at S&P 500 companies jumped an estimated 23.5% in the three months through June, according to data from Thomson Reuters, more than 21/2 times revenue growth in the same period.
“The profit gains, which stretched across all S&P sectors, from energy to health care, have helped sustain a stock-market rally that sent major indexes to near records and made Apple Inc. the first U.S. company worth $1 trillion.”
Earnings and profits drive the price of stocks. Concerns about the record levels of the stock market have to be put in context. While there is no infallible crystal ball the stock market is generally a leading indicator of economic activity. It does not take a degree in economics to anticipate that tax cuts for corporations and individuals, and an increase in the number of people working will lead to increasing profits. The actual numbers are not nearly as important as the trend. However, a 23.5% increase in profits for the largest corporations is quite impressive.