Global Macro: Investors Shift Focus to Margins
NEW YORK (TheStreet) --Investors' focus may shift to profit margins as corporate earnings season ramps up.
Investors have been watching economic data closely to see if tighter monetary policy is justified. The numbers have been better than expected, which has helped boost stocks.
On Wednesday, the Federal Reserve released minutes from its December meeting stating that policymakers intended on further reining in stimulus while keeping short term rates low. As much as economic data have outperformed expectations, investors now must justify valuations through corporate results.
Less stimulus leads to more reliance on companies producing sustainable results. Borrowing costs continue to rise, which creates more demand for increased profits and a steady growth in cash flow to keep valuations elevated.Relatively high profit margins helped companies navigate through the tough times of the financial crisis. Increased efficiency as opposed to more adding workers allowed companies to generate strong profits on weak revenue. Now that the economy has grown out of the crisis, the labor market has steadily improved. The payrolls number on Friday missed expectations, but the winter cold shouldn't derail the underlying trend in employment. US Unemployment Rate data by YCharts Follow @macroinsights This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
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