The week in finance: 10 February 2017

Profits at US companies are increasing, but stock prices have already shot higher

US earnings season is coming to a close and companies reported increasing profits for the second consecutive quarter (after five straight quarters of declining profits). However, that good news has been somewhat overshadowed by investors’ relatively high expectations going into this earnings season.

Stocks are up only about 1 per cent despite the relatively upbeat earnings. The lacklustre response to the fairly decent set of results is largely due to the big run-up in stock prices that occurred in the 3 months prior to earnings season (US stock prices rose 6 per cent over that time period). In effect, investors were already anticipating improved profits.

What happened in Britain?

A closely watched survey of British firms suggests that economic growth in the UK cooled slightly in January but is still growing at a healthy clip. The survey of “services” businesses, which account for 80 per cent of economic activity in the UK, suggested that the overall economy is growing at a quarterly rate of about 0.5 per cent (only a smidgen slower than the 0.6 per cent rate it clocked in the fourth quarter of last year). However, some economists interpreted the data as a sign that higher prices (a.k.a. inflation) are starting to dampen economic activity.

And finally…

Twitter’s stock sold off 10 per cent on Thursday after it said it made less advertising than expected in what should have been a strong fourth quarter (e.g. FB’s advertising revenue grew more than expected and the US election should have helped provide a tailwind). This comes despite an increase in Twitter’s daily active users, which means Twitter is struggling to monetize its user base.

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