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How Sustainable Is Earnings Growth?

Courtesy of ZeroHedge. View original post here.

Via Global Macro Monitor,

Not very… and we will leave the calculation for the entire stock market to the stock analysts. 

Here’s why:

Just glancing over WalMart’s latest earnings release from the week, we see two one-off macro factors that helped WalMart’s earnings in Q1, and most likely the same for other companies:

  1.  Foreign exchange rate effect

  2.  The tax cut

Note that almost 40 percent of WalMart’s y/y revenue growth in Q1 was due to the exchange effect…

And over 1300 bps of tax cut relief. 

That is one-offs.

Though the dollar was weaker in Q1, it has rebounded sharply in Q2. 

Thus a deleterious exchange rate effect is coming to Q2 earnings.

Not to mention higher gas prices and interest rates, which will negatively impact the non-energy and non – financial sectors.


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