Planning Briefs

Earnings Drives Stocks, And That's A Good Bottom Line

Published Tuesday, January 23, 2018 at: 7:00 AM EST

Since April 1991, a dollar invested annually in the average company in the Standard & Poor's 500 index averaged a 7.4% total return, driven by profits that grew an average of 7.4% annually. In 2017, 2018 and 2019, earnings growth of 11%, 12% and 10%, respectively, are expected. This why the Standard & Poor's 500 index returned 22% in 2017 and continues to climb in 2018.

At 103 months, this expansion is the third longest in modern U.S. history, behind the 120-month boom of the 1990s and the 106-month-long expansion of the 1960s. This growth cycle could set a new modern record, but you never really know what's going to happen.

The S&P 500 has broken new record-highs repeatedly since the November 2016 election. Yet plenty could go wrong: rapid growth spurred by the new tax act increases the likelihood of a Fed interest-rate policy mistake, quashing growth or accelerating an inflationary spike. Meanwhile, a constitutional crisis, the nuclear standoff with North Korea, and unspeakably nightmarish events may seem suddenly more imaginable.

A 10% or 15% drop could occur in a flash of bad news and the chance of a bear-market decline of 20% or more increases as the long bull market grows older. But the economy shows not a whiff of recession. To the contrary, smashing earnings growth is expected, and that's literally the bottom line.

This article was written by a professional financial journalist for Preferred NY Financial Group,LLC and is not intended as legal or investment advice.

An individual retirement account (IRA) allows individuals to direct pretax incom, up to specific annual limits, toward retirements that can grow tax-deferred (no capital gains or dividend income is taxed). Individual taxpayers are allowed to contribute 100% of compensation up to a specified maximum dollar amount to their Tranditional IRA. Contributions to the Tranditional IRA may be tax-deductible depending on the taxpayer's income, tax-filling status and other factors. Taxed must be paid upon withdrawal of any deducted contributions plus earnings and on the earnings from your non-deducted contributions. Prior to age 59%, distributions may be taken for certain reasons without incurring a 10 percent penalty on earnings. None of the information in this document should be considered tax or legal advice. Please consult with your legal or tax advisor for more information concerning your individual situation.

Contributions to a Roth IRA are not tax deductible and these is no mandatory distribution age. All earnings and principal are tax free if rules and regulations are followed. Eligibility for a Roth account depends on income. Principal contributions can be withdrawn any time without penalty (subject to some minimal conditions).