Corporate Earnings Reports Provide Important Clues to Economic Health

Earnings season, when corporations report their financial results for the first quarter of 2014, kicks off this week with industry bellwether Alcoa reporting on Tuesday and banks JP Morgan and Wells Fargo on Friday.  According to Bloomberg, consensus earnings and revenue estimates for the S&P 500 are flat to slightly lower for the quarter versus the fourth quarter.  More important to us than the overall headline numbers are the underlying details of company reports, particularly for the banks, as they can help paint a picture of the mood of corporate America.  For the banking sector, an indication in their earnings regarding the supply and demand for loans tends to correlate with economic growth.  In addition, many non-bank corporations will speak to their willingness to add staff and availability of labor, which has an impact on the employment situation.  Our bottom-up research will help drive our overall viewpoint on the US economy and its effect on monetary policy decisions by the Federal Reserve.  As we’ve mentioned in the past, monetary policy has the largest correlation to the direction of interest rates, making these data points extremely valuable from a macro-economic perspective.