Summer vacation is over and children are going back to school. As kids return to the classroom to learn the fundamentals of the “three Rs” (reading, ‘riting, and ‘rithmetic — but clearly not spellin’), in this commentary we return to the basic fundamentals of investing and look at some of the basic drivers of stock prices. To do that, we discuss our own version of the three Rs that underpin our positive stock market outlook for the balance of 2014: revenues, reinvestment, and renaissance.
Revenues — as in corporate revenues. Revenues drive corporate profits, and profits are the key fundamental driver of stock prices. Our 2014 earnings outlook remains positive based on several factors discussed below.
Reinvestment — as in reinvestment of capital. We believe companies are poised to increasingly reinvest in their businesses and drive future growth.
Renaissance — as in manufacturing renaissance. The U.S. manufacturing sector has staged an impressive rebound from the depths of the financial crisis and is experiencing what many have called a renaissance, or rebirth.
We believe these three Rs are all key components in evaluating the opportunity for further stock market gains.