Corporate Earnings: Good for ETFs, So-So for Recovery | ETF Trends

Main Street and corporate America are on different wavelengths, something keenly illustrated in the third-quarter earnings season. This means that although recovery may be a halting one, exchange traded funds (ETFs) may continue to do well as long as corporations remain solidly positioned.

Corporate America earned profits of an annual rate of $1.66 trillion for the third quarter, the highest mark since the government began keeping records more than 60 years ago, reports Catherine Rampbell for Yahoo! Finance. American businesses have seen their profits grow consecutively for seven straight quarters and at historically high rates.

The step up in sales is accredited to several things:

  • Strong productivity growth – businesses are able to produce more at a lower cost.
  • Better sales in foreign markets, especially in the quickly expanding emerging markets like India and China.
  • Stronger consumer spending domestically contributed to the increase in output, with wages and salaries rising in the third quarter.
  • Furthermore, private inventory investment, nonresidential fixed investment, exports and the federal government also helped improve the country’s productivity. Still, a rise in imports and a drop in housing and other residential fixed investments offset some of the gains. [Tech ETFs: 4 Reasons They’re Going Gangbusters.]

However, Paul Dales, a United States economist for Capital Economics, cautions that “the economy is not growing fast enough to reduce significantly the unemployment rate or to prevent a slide into deflation” and “is unlikely to change in 2011 or 2012.” [The CPI Is Out: 6 ETFs for Deflation.]

It all means that while we may not see a fully healthy economy anytime soon, corporate America is holding tight. It may not benefit Americans directly, but you can capitalize on their good fortune with ETFs, including these broad large-cap plays:

  • SPDR Dow Jones Industrial Average (NYSEArca: DIA)
  • SPDR S&P 500 (NYSEArca: SPY)
  • PowerShares NASDAQ 100 (NASDAQ: QQQQ)

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.