One of the lingering effects of the Great Recession, credit crisis and global slowdown has been corporate earnings. With growth being less than ideal for the last decade or so, earnings haven’t exactly been up to snuff. While profits continue to be at record highs and many stocks are making money hand-over-fist, those profits haven’t been so-called “quality” ones. One of the biggest trends is that profits haven’t come by growing sales, but rather by cost cutting and other financial moves.
Looking at the earnings situation in that way sort of puts a damper on the continued growth of earnings per share for many stocks.
However, with the latest quarter now in the books, things may be turning the corner. For the first time in a long while, earnings are actually because of a valid reason and not because of financial engineering. The question is whether it will last.
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A Big Switch
As the Great Recession decimated the world’s economies, getting back to square one was a big task for most multinational firms. You had Europe double- and even triple-dipping into the recession, the U.S. plodding along suboptimal growth levels and Japan slipping back into deflation and its long-term doldrums. Even faster moving, emerging markets stalled under the weight of collapsing commodity prices, political instability and the higher dollar.
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