Laverne & Shirley; Jordan & Pippen; Earnings & Interest Rates
The article compares famous duos to the critical pairing of earnings and interest rates in investing, explaining that stock values are largely driven by a company's earnings growth—which signals business health and capital generation—and by interest rates, which affect the present value of those future earnings, with higher rates reducing and lower rates increasing their worth.
🎟 Don't Miss Our Limited $849 Ascent Offer — Save $350 With Code ASCENT27EB. Register Now →
Laverne & Shirley; Jordan & Pippen; Earnings & Interest Rates
Wealth Management
July 12, 2021
July 12, 2021 09:53 AM
Share: Facebook Twitter LinkedIn Email
History is full of great duos, both fictional – Cagney & Lacey, Holmes & Watson – and real – Venus & Serena, Sonny & Cher. When it comes to investing, we have our own great duo, a pairing that more than any other determines the direction of the stock market: earnings & interest rates. When one owns a stock they have a claim on a share of a company’s earnings – and growing earnings should, on balance, reflect a company and a business model that is performing well, and importantly, generating capital that can be reinvested back into the business and/or distributed to shareholders. Stating the obvious, growing earnings are a good thing, and declining earnings are a bad thing. Interest rates (and here we can think of interest rates broadly, from the Federal Funds Rate to yields on high quality, traditional fixed income, including the yield on the US 10-Year Note, which is the global risk-free rate) are important in that high rates make a company’s future earnings worth less and low rates make a company’s future earnings worth more. Again, stating the obvious, low rates are good for the market and high rates are bad for the market. Well, the yield on the US 10-Year Note sits at a very low 1.35% and S&P 500 earnings are expected to grow 35%+ this year. Said plainly, rates are low and earnings growth is high – something to keep in mind as we navigate a summer likely to be marked by concerns and questions over new variants of the coronavirus, slowing global growth, and less supportive fiscal and monetary policy.
The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital Investments, LLC, a registered investment advisor. 1989-BCI-7/12/2021
Tagged: Tim Holland, weekly wire, market perspectives, earnings, interest rates
Copy link
✓
Thanks for sharing!
Find any service
A2A