Janet Yellen Will Be Watching Corporate Earnings

Investors gearing up for a downbeat earnings season will have some company this quarter.

We now know that Federal Reserve Chairwoman Janet Yellen will be keeping an eye on results after she said during a speech last week that “foreign economic growth now seems likely to be weaker this year than previously expected, and earnings expectations have declined. By themselves, these developments would tend to restrain U.S. economic activity.” 

Though it’s not entirely clear what she’ll be watching within the reports, it’s nothing to shrug at, according to Ed Yardeni, president and chief investment strategist at Yardeni Research Inc., who pointed out the reference Tuesday.

“Just the fact that she mentioned it for the first time that I can recall I think is important,” he said.

Traditional Keynesian macroeconomics holds that monetary policy drives the business cycle, which in turn drives corporate profits. But Ms. Yellen’s reference to earnings may be a sign she’s starting to think the causality works the other way as well, Mr. Yardeni said.

Alcoa begins reporting next Monday after the closing bell, unofficially ushering in the start of corporate earnings. Earnings among S&P 500 Index companies are seen falling 8.5% in the first quarter from a year ago, according to FactSet, marking the first time earnings have fallen for four straight quarters since the financial crisis.

That means the Ms. Yellen may not like what she sees.

http://blogs.wsj.com/moneybeat/2016/04/05/janet-yellen-will-be-watching-corporate-earnings/