This month Jason Weaver discusses the debt ceiling, earnings and quality stocks.
DEBT CEILING
As national debt has soared, the U.S. has had to borrow more money to pay for government spending.
When the US spends the maximum amount authorized, Congress must vote to suspend or raise the limit on borrowing
Since, 1917, The US has raised the debt ceiling over 100 times. More recently, 2011, 2013 and 2017 debt ceiling issues arose as the current administration had to contend with a divided congress
The long-term affects of higher debt is a hotly debated topic. Will there be inflation or deflation? Will the dollar be replaced as the reserve currency?
One idea that most agree on, is that taxes will need to go up
EARNINGS
When corporate earnings rise, the stock market tends to rise as well.
Investors are willing to pay higher prices for stocks when they believe that companies are making more money
Q1 2023 earnings were generally better than feared
– 78% of SPX companies reported positive EPS surprises
– 75% of SPX companies reported positive revenue surprises
Economic growth, inflation, interest rates, and sentiment all play factors in earnings
QUALITY
“Quality” refers to stocks exhibiting positive fundamentals.
High return on equity
Stable year-over-year earnings growth
Low financial leverage
Quality tends to outperform in challenging market environments, especially during slowdowns and cyclical recessions
Examples:
– Home Depot (HD)
– Microsoft (MSFT)
– Apple (AAPL)
– Mastercard (MA)
– Exxon (XOM)