— by Mitchell Clark, B. Comm.
There are a lot of mixed signals coming from the marketplace, but the first major week in earnings season did start out on a positive note. However, the fact is that large financial institutions should be making money considering all the free capital they received from government and because they’re able to keep their really bad assets off their balance sheets. The numbers are artificial, but at least it made the stock market feel better about itself.
Some good news was present in the latest batch of new housing numbers, but let’s not forget where we are coming from. When you see growth in construction numbers, it’s only because those stats are coming off rock bottom. The current growth looks good this, but this amount of construction activity is still way below where it was last year.
The Commerce Department reported that construction of new homes and apartments grew 3.6% in June, which was a better than-expected number. More importantly, applications for new building permits grew 8.7% in June to an annual rate of 563,000 units, also better than expected.
There’s also been some positive growth in earnings from large-cap technology companies. This was expected and is really a sign of effective cost control over top-line sales growth. In fact, there is no sales growth, only contraction.
The ray of hope for the rest of the world seems to be with China. The world’s third largest economy grew 7.9% in the second quarter, which makes that country’s 8.0% annual growth target more likely. First-quarter economic growth was 6.1%, so it seems like that country’s economic stimulus spending is working. And the good news with this story is that inflation is well under control. As compared to Western countries, China’s method of calculating economic growth is well understated. According to Goldman Sachs, China’s real second-quarter growth using our way of calculating the numbers is more like 16%. As long as inflation doesn’t get out of control, this is a good sign for the rest of the global economy.
So, the news so far this earnings season is pretty decent. Corporate visibility has been cautiously optimistic, but no big company is expecting any big growth, because there is still too much uncertainty in the marketplace. The best thing we can get right now is more hard news from companies. The latest numbers are always the best.