By George Leong
Trillions of dollars of government stimulus and Federal Reserve quantitative easing (QE) later, the U.S. economy continues to drag along, with gross domestic product (GDP) growth at just over two percent.
The Federal Reserve decided to continue to print money instead of doing the right thing and tapering—and it blamed the decision on what continues to be tepid growth and a soft jobs market.
America’s economic renewal was also cut by the Federal Reserve.
The end result was a surge in the stock market on the continued money printing. But the cuts and concerns from the Federal Reserve are a harbinger of things to come.
How can you expect corporate America to deliver results to investors in the upcoming third-quarter earnings season and forward if the Federal Reserve isn’t showing any confidence?
The reality is that America is in trouble. Trust me: the Federal Reserve has even said this when it made its downward revision in GDP and took a cautious stance.
So I wouldn’t be getting too excited about the decision to not taper. There are problems ahead, and one of the greatest will be the inability of companies to deliver reasonable revenue growth based on the GDP growth. The S&P 500 companies only beat two-thirds of all estimates in the previous quarters—and that was on already lowered estimates by Wall Street.
In the third quarter, revenues are estimated to expand 2.6%, according to FactSet. (Source: “Earnings Insight,” FactSet Research Systems Inc. web site, September 13, 2013.) Sorry, folks, but that is just not that good—it’s even lower than the three-percent reading in June.
The irony is that people complain about the 7.5% GDP growth in China, yet the U.S. stock market rockets to new record-highs based on the muted growth here.
As long as the economy continues to grow in the two-percent range, the potential for corporate America to deliver better results will likely not happen. Of course, companies failing to achieve ample revenue growth will likely continue to cut costs and headcounts to meet Wall Street’s expectations.
The Federal Reserve really needs to take a hard look at what it has done so far and realize that while the economy has stabilized following QE and is much better off now than it was during the recession, the Federal Reserve’s policies of just printing money and driving up the stock market are not working.
Investors need to take a step or two back and be very careful as we move into the always-interesting month of October and the fourth quarter. With stocks already up over 20% for the year, there may be very little upside left in stocks, so be careful and make sure you take some profits off the table before you risk losing it all.
This article How’s the Market Faring Trillions of Dollars of QE Later? Not Well was originally published at Investment Contrarians