The Dow, Nasdaq and S&P 500 all posted approximately 7% gains for the month of July, very impressive right? Let’s look a little deeper. With approximately 70% of companies in the S&P 500 having reported their earnings so far, on average top line sales growth came in around 9% even though earnings are running at a much higher rate than a year ago. It appears that companies are continuing to run their businesses more efficiently via layoffs, cost cutting measures, productivity and the like. So the earnings growth in which the markets are embracing is not really coming from sales growth which we have to pay attention to. To me this means that the consumer remains tepid and in my humble opinion in order for the markets to continue to march north in a meaningfully consistent way, consumers must become more confident and that will only happen when there is real job growth.

There is a lot of work that needs to be done in this economy and job market, but in the meantime companies will have to continue to run more efficiently and the interest rate environment we find ourselves in will have to remain friendly in order to keep a floor in on this fragile market. Let’s hope that these scenarios will buy enough time for the job market to improve, hence companies should then begin to realize top-line growth and the markets can continue northward.

Have a great week.

~George