Inflation Expectations Vary By Age

Earnings Growth

Earnings growth is set to peak after this quarter which will have great results. That matters now because stocks are priced based on guidance. However, peak earnings growth isn’t that bad for stocks. Investors already priced in the current spike in earnings growth a few months ago. Stock prices have been influenced by 2H earnings expectations for a few weeks already. Most individual investors looking at specific stocks price them based on 2022 EPS and sales estimates.

As you can see from the chart above, global EPS growth peaked in April. Bank of America is modeling a decline in EPS growth. This isn’t groundbreaking stuff. It’s based on tougher comps and the lack of a fiscal stimulus. The Fed is set to end QE next year, but that shouldn’t have much of an impact on EPS growth. Stocks aren’t going to fall when EPS growth falls. There will only be a negative impact if the slowdown is more severe than expected. The weakness in manufacturing and commodities might simply be a normalization. The 10-year yield isn’t signaling a recession at all. It’s just showing that growth is peaking.

Consumer Spending Looks Solid

The consumer had a solid May even though the stimulus checks were mostly gone. The next bar to overcome will be the end of the pandemic unemployment benefits in June and July. As you can see from the chart below, the 2-year card spending growth stack has mostly been solid in the past few months. In May, card spending growth excluding autos and retail spiked. Total spending growth was solid, while retail spending growth ex-autos fell slightly. In the week of June 12th, Redbook same store sales growth rose from 14.5% to 16.4%.

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