Despite all the hand-wringing about the economy and its prospects, the stock market hit another record high. Why? Earnings and the expectation of future profits continue to beat estimates, even as interest rates creep up. The real question is no longer whether the bears are wrong, but how long the huge corporate spending boom can defy the gravity of rising borrowing costs.
This bull market is about nothing but earnings growth, Michael Purves, the founder of the research firm Tallbacken Capital, told The Times. What’s happening now is the best earnings and margin growth in our lifetime, Steve Chiavarone, the chief investment officer for equities at Federated Hermes, told The Financial Times. That momentum should carry on through the corporate earnings season, which begins next week: Over 70 companies in the S&P 500 have raised profit estimates for the recent quarter, a record, according to Fact Set.
Among them are energy companies that have benefited from rising prices and technology giants that are reaping huge profits from the artificial intelligence boom. (By contrast, eight of the 11 sectors in the S&P 500 are down.) Those two sectors are benefiting from points of pain for the economy. Higher energy prices, driven by the conflicts in the Middle East, are putting pressure on other industries. Brent crude, the international benchmark for oil, traded above $101 a barrel this morning. And the eye-popping buildout of A.I. infrastructure — which shows no sign of stopping, as Space X’s reported plan to borrow $40 billion to buy Nvidia chips demonstrates — is helping to push up bond yields. The yield on the 10-year Treasury bond, which is linked to many home and commercial loans, ticked above 5.3 percent on Wednesday, around a decades-long high.
Worries about the status quo continue to grow. The president of the San Francisco Fed, Mary Daly, told Axios that she’s worried those two factors combined could further push up inflation, potentially forcing the Fed to raise rates. And Ray Dalio, the founder of Bridgewater Associates, told Bloomberg Television that the increasing borrowing by A.I. companies could further tighten other types of credit, and that even some tech giants are starting to hit debt limits.
Source: New York Times Business · Summarized by HeadlinesBriefing