Featured in FT Unhedged: Profits up, rates down

One might object that S&P 500 profits are not representative of the corporate economy as a whole, because big companies are much more profitable than small and midsize enterprises. This is true to an extent. Data on the wider corporate economy from the national accounts show a growth rate of profits that is a bit below the long-term average, but moving sideways at about 5 per cent in the past few quarters:

I am not sure what to make of the combination of increasing profits and loosening monetary policy. My first thought is that it is absolute catnip for the stock market and risk assets generally: increasing profits and a falling discount rate, at the same time! Nirvana. Until one of those things changes, you want to be in this market. As Ian Harnett of Absolute Strategy Research put it to me, the combinations of earnings growth and cuts

shows why we remain risk-on . . . The closest parallels are 1996 and 1998 and in those periods, equities subsequently gained 20-30 per cent. So, it feels hard to get too nervous here if the Fed are determined to cut again before the end of the year.

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