The economic tide is ebbing and flowing with unworldly vigor, but the final round-up of fourth-quarter earnings signals that stocks are still on course for now.

🕰 Recap

• Fresh data out on Tuesday showed that European economic activity suddenly seems a lot perkier. Read our story
• But on Wednesday, Rio Tinto issued results that were far from iron-clad, after the price of its top commodity plummeted. Read our story
• Artificial intelligence (AI) is still stealing headlines though, with Nvidia’s CEO pumping up the theme during Wednesday's results call. Read our story

✍️ Connecting The Dots

It’s hard to keep your finger on the economic pulse at the best of times – and these are definitely not the best of times. See, a cloudy outlook at the start of the year cast shadows on markets and companies’ profit. The economy, though, managed to summon some strength, and calmer inflation data suggested that the end of painful rate hikes could be in sight. Problem is, a sunnier economic outlook isn’t entirely good news: a stronger economy could give inflation a new lease of life, and that prospect's leading to fears that rates may need to go higher and stay there for longer.

Now, some stocks – like chipmaker Nvidia, which is psyched up by hot demand for AI – are holding up just fine, surprising the market and surging despite the changeable economic weather. Others are struggling, just look at Home Depot’s share price reaction after Tuesday’s dismal earnings announcement. But when you look at the whole picture, the outlook for company performance has barely budged. In fact, analysts now expect company revenue to jump 5% this year from last, bang in line with December’s forecasts. And right now, company profit looks like a sturdy ship sailing through rough economic seas: the same analysts predict profit will climb 2.3%, and that’s also only a shade lower than December’s forecast.

What that means is that if the outlook for company profit stays steady, you don’t need to let market sentiment steer you off course. A rally doesn’t mean you have to jump in, and a sell-off isn’t always the end of the world. So let that outlook guide you, and scrutinize overly pessimistic and optimistic points of view.

🥡 Takeaways

1. Commodities might be forever, but dividends aren’t.

Mining firm Rio Tinto cut its dividend by 50% this week, a cautionary tale for income-chasing investors. After all, companies need enough cash to dole out their payments, and mining companies – along with most commodity companies for that matter – often see their profit rise and fall in tandem with economic cycles. There are exceptions, though: oil giant Chevron hasn’t cut its dividend in over 80 years.

2. Expensive business.

Home Depot and Walmart announced results on Tuesday, and boy, retailing is expensive business. Despite boasting sales well above pre-pandemic levels, both firms are being weighed down by wage and freight costs – and that means margins haven’t risen as much as you’d expect. But just like with commodity companies, you can’t tar all retail firms with the same brush. Some – think Costco – have comparatively smaller wage bills to pay, and have managed to convert more of their bumper sales into higher profit margins too.

🎯 Also On Our Radar

Recent research by VandaTrack shows that Tesla’s still the top dog for retail investors. Not only does the stock still head up the table of retailer investors’ most-bought stocks, but it’s nearly three times as popular as second place: the SPDR S&P 500 exchange-traded fund.