U.S. earnings growth continues to decelerate, but the weak dollar and strong global economy imply no contraction ahead. Corporate earnings growth has been steadily slowing in the past several quarters, and prospects are for further soft results ahead given that the economy is still growing at a sub-potential pace. On the positive side, the weak dollar is providing a lift, particularly since it has occurred at a time when global economic activity has been strong. Overseas profit growth lagged the domestic upturn in recent years, but is now a source of strength. While foreign profits are only 17% of total profits based on the government’s national accounts measure, they comprise a larger slice of the S&P 500 profits. Thus, while corporate earnings will remain the weak link for equities as long as the economy stays soft, we do not foresee a contraction in profit levels that typically coincides with a significant market decline.
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