U.S. economic growth in the opening quarter this year was the weakest in more than four years as businesses sold off inventories and Americans imported more foreign goods, the government reported on Thursday.
Tell me about it. There wasn’t much to like in the report.
Growth in corporate profits is evaporating. Given that the reasonableness of current P/E valuations is dependent on the historically high “E” this should concern stock market participants.
Corporate profits also, not surprisingly, tend to be correlated with business spending on technology. Hopes for a Microsoft (MSFT - Annual Report) Vista-inspired tech spending resurgence appear to have been dashed. While bulls argue that lower profits will require tech investments to spur productivity, the recent trend is for companies to do more with less. Therefore, I’d argue that there will be a smaller share of the smaller profit pie going to tech.
I’ve said before that betting against the American consumer is always a long-shot. At the same time, though, I’d be inclined to at least hedge any bet on continued strength.Like this article? Why not try out: