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Global Growth New Hope for Investors for Earnings

Global Growth New Hope for Investors for Earnings
As S&P 500 companies are set to report their first quarter of double-digit profit gains since 2014, U.S. investors are looking overseas for stronger earnings even though America First may be a main policy of the White House and fuel to the stock market rally.
With the S&P 500 rallying this month to its most expensive since 2004 on a forward price-to-earnings basis, a strong earnings season would help justify pricey stock valuations.
Data during the quarter has suggested the global economy is strengthening even as President Donald Trump's vows to boost the domestic economy and the U.S. economy has gotten a lot of attention since the Nov. 8 election. And since nearly half of their sales come from overseas, that is welcome news for S&P components.
Among the strongest performers over the past several weeks has been the shares of the biggest U.S. companies, which tend to have the most overseas exposure. For instance, after performing mostly in line at the beginning of the year, since mid-February, the S&P 500 has outperformed its average stock .SPXEW this year.
"The fact that we're seeing stabilization in the global community will bode well for multinational companies and help earnings for the first quarter," said Terry Sandven, senior equity strategist at U.S. Bank Wealth Management in Minneapolis.
"You've also seen the dollar not appreciate as much as many had forecast a quarter ago, so multinational companies may get some relief on the (foreign exchange) line," he said.
When they are translated into the U.S. currency, a weaker dollar boosts offshore revenues. The U.S. dollar index was down 1.8 percent in the first quarter, but it was still cheaper during last year's first quarter.
Euro zone business activity was shown at a six-year high in a survey this week. In 2017 and 2018, especially in developing economies, a pickup in the global economy is shown in forecasts from the International Monetary Fund.
Multinationals may have already priced in big gains in earnings, some investors worry.
"As long as nothing changes, these firms are going to be fine," said Jack Ablin, chief investment officer at BMO Private Bank in Chicago, speaking of the strength of the largest American companies.
Stock prices may have taken in any good news, he however warned. "The market has certainly fully discounted all that."
With results from banks JPMorgan Chase, Wells Fargo and Citigroup among others, the U.S. earnings season gets under way next week.
And second only to energy among S&P sectors, the financial sector is projected to post a 15.4 percent profit gain.
Expected to do most of the heavy lifting this earnings season with a whopping 600 percent increase are energy companies, which carried most of the losses that extended an S&P 500 earnings recession until the second quarter of last year.
Strategists said that issues like higher wage and other costs facing companies would be compensated by revenue which is expected to have jumped 7 percent, the most since 2011.
"We're seeing revenues contribute materially more to that bottom-line growth," said Patrick Palfrey, senior equity strategist at RBC Capital Markets in New York.
"It comes down to a synchronized global economic acceleration ...; a rebound and stabilization in commodity prices and a higher interest rate environment," Palfrey said

Christopher J. Mitchell

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