There's one big reason the stock market is becoming Trump-proof

pulse

May 18, 2017 6:55 PM

Profit growth has proven itself to be a good safety net for US stocks — a necessity in an era where the latest Donald Trump headline can whipsaw global markets.

Corporate earnings growth has proven itself to be a more-than-capable safety net for US stocks — something that's proven to be a necessity in an era where the latest Donald Trump headline can whipsaw global markets.

Historically the biggest contributor to share price appreciation — profit expansion — has returned to the S&P 500 with a fury not seen in almost six years.

Companies in the benchmark are on pace to see 14% earnings growth for the first quarter of 2017, the most since the third quarter of 2011, according to data compiled by Bloomberg.

"Obviously the market was shaken yesterday, and it’s not the last time we’ll see that," Richard Sichel, senior investment strategist at Philadelphia Trust Co., which oversees $2 billion, said in a phone interview. "But the underpinning of good, strong corporate earnings still makes stocks a good place to be — as long as you can put up with some increased volatility."

While corporate profit expansion certainly boosts share appreciation, the US stock market showed the ability to recover even when mired in a five-quarter contraction from 2015 to 2016. This type of resilience has been a hallmark of the eight-year bull market as investors have used weakness as an opportunity to buy.

It's important to note that during that period, the stock market was being underpinned by unprecedented monetary stimulus from the Federal Reserve that made it extremely cheap to borrow money. Companies were also able to pad their share prices by repurchasing their own shares.

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