Breakout

Taking care of business: 'Resilient' corporate earnings to drive stocks higher

When it comes to churning out profits and pushing higher in the face of a slow growth U.S. economy, corporate America has taken a page out of Elvis Presley manager Colonel Tom Parker’s playbook – they’re just ‘taking care of business.’

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Colonel Tom Parker

The key word is “resiliency,” and it’s what John Canally of LPL Financial thinks corporate America is doing right, scraping by and capturing profits when it can, which pushes stock prices up ever so modestly in the process.

“Companies are getting incremental gains from revenue, holding the line on expenses, so at the end of the day we’re likely to see modest gain in earnings for the quarter, somewhere maybe around 5%,” he predicts. In the grand scheme of things it doesn’t seem like a lot, but the consensus just a few weeks ago was for flat earnings.

Although we might hear some excuses (weather, Asian economic weakness, Ukraine uncertainty), what’s going to help drive earnings is that “the economy here is going to reaccelerate,” he says. Canally also believes we’ve seen the worst in Europe too, and it might provide a tailwind here. “GDP in the U.K. is almost at 3.5% in the first quarter... maybe as China slows down a bit, Europe is picking up.”

Ultimately, eking out small profits every quarter will eventually lead to a decent end-of-year return for the broader markets. “We still think at the end of the year we’ll still be up 10 – 15%, driven by a high-single digit gain in earnings, maybe a smidge of P/E expansion,” he says.

After a see-saw like four months that’s left the market “all shook up,” double-digit returns in 2014 sure sounds like welcome relief for some investors singing the blues.

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