The Buy America trade
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What are the current earnings trends for US companies?
Pushkin.
There's really no two ways about it. US companies are absolutely crushing it at the moment. We're well into earnings season in the States right now, one of the currently four times of year when listed American companies tell the world how they're doing. And the answer is, very nicely indeed. Thanks very much. A good chunk above 80% of companies in the S&P 500 have beaten what were already pretty lofty expectations for the money they're making. And it's not just in AI. Today on the show, heaven knows, it pains me to say it, but it's the Buy America trade. This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist at the FT in London, busily memorising the entire internet in advance of the FT Alphaville pub quiz tonight.
All the way from over there in the land of bumper earnings, it is the big fella, Mr. Robert Armstrong, who today has been put in a special chair for recording this podcast.
It's true. I'm a bad boy and I move around a lot when I talk. And so our producer, Jake, has gotten me a chair that doesn't move so I will sit still. And if this doesn't work, what restraints are coming next is an open question. Like he's going to zip tie my wrists to the arms of the chair. Whatever it takes.
Yeah, whatever it takes. This is the start of the fight back against a very wiggly, wriggly Robert Armstrong.
It's true. At 54 years old, I'm still the wiggly boy at the back of the class.
Sit still Armstrong! We digress. Rob, tell me, what the hell? What the hell? Like, earnings season is just like... I've never... It's cray cray.
I have never seen an earnings season like this. Average S&P 500 earnings growth so far is... And it's been amazing. I'm ashamed I didn't see this dramatic change coming, but there are a couple of fairly commonsensical explanations for this we could go through.
Yeah. But just a little bit more on the scale of this thing. So as you say, mid 20s percent in the first quarter year on year. That's like a lot of earnings growth. It puts us at roughly a four year high. And one of the weird things about that is that sometimes you see these explosions in corporate earnings growth when you're coming out of a recession or you're coming out of some sort of shock. So like COVID is over and the global economy reopens and hey, corporate America does incredibly well by comparison with the previous quarter or so. by comparison with the previous year. Now it's just like... We're not in a recovery.
How could the Middle East conflict impact US markets?
It's just happening. I mean, just to put the size of what we're seeing right now in context, over the very long term, the average earnings growth rate for the S&P 500... in real inflation-adjusted terms, is something like 7%, 7.5%. So we're going along maybe tripling or quadrupling the standard rate of growth this quarter. It is like an amazing event we're seeing. And it goes a long way to justify the dizzy heights that markets have hit.
weirdly, it goes pretty much 100% of the way towards justifying the dizzy heights in US stock markets at the moment. So we've talked about this on the pod before, but it is like double weird that you have stock markets like cranking higher, but without what we call multiples going higher. So investors aren't paying more for the same stuff. They're just tracking earnings. They're following fundamentals in corporate earnings.
Each dollar of profits costs you the same thing, right? And so there's just more of the profits.
So more profits, so line go up. So this is like... You know, it's very unusual for markets to trade on fundamentals. Like normally they trade on like, you know, hope and expectations and hype and vibes and all this sort of thing. Yes. That's actually like not what's happening in the States at the moment. So this is quite, it really is quite extraordinary. So look, AI is a big part of it. Let's talk about like, you know, there's tech companies that are making money hand over fist. Fine. I think we kind of expect that's going to be a thing, right?
But there's also one of the sectors that's growing earnings at a very lively pace this quarter is industrials.
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