The Commerce Department reports that U.S. corporate profits have hit historic highs, so why isn't the GOP -- the party of business -- celebrating? After all, those profits are coming not from revenue growth -- which would benefit workers and executives -- but from cost cutting.
U.S. companies are raising their outlook not just for oversees growth, but for domestic profits as well. The last time American executives were this optimistic, stocks climbed 39% over the next 3 1/2 years, data compiled by Bloomberg show.
The "new normal" coined by Pimco posits a long era of diminished earnings and stock prices as overleveraged consumers and companies cut back. But it's not playing out that way. It seems Corporate America is growing less and less dependent on America.
Investors received another slice of good news Monday about the U.S. economy: The federal budget deficit for August totaled a smaller than expected $90.5 billion, thanks to rising government revenues due to higher tax receipts from stronger corporate profits.
Widespread pessimism among investors seems out of line with broader economic developments, which continue to be mixed. So stocks may be undervalued because investors are being overly conservative -- meaning this could be a good time to buy.
If you're wondering how corporations can be enjoying a sharp rebound in profits even as the U.S. economic recovery remains so weak, David Rosenberg of Gluskin Sheff has your answer: They won't be enjoying it for much longer.
Investors should remember that the U.S. has suffered through only one return-to-recession in the past 30 years -- and we're likely to avoid that fate again. A more real worry, however, is that this will turn out to be a jobless recovery.
The U.S. economy grew at a revised 2.7% annual rate in the first quarter, less than the previously estimated 3% rate. The weaker growth performance will likely intensify the debate about the recovery%u2019s status.