The new earnings season will begin next week. Three broad themes deserve attention.
First, operating margins of manufacturing firms have been expanding in recent quarters because of lower input costs, even through net sales have stagnated as companies have lost pricing power. It will be worth seeing whether the June quarter has more of the same.
Second, the economic recovery is being led by consumer demand while corporate investment has been weak. A comparison of the financial performance of companies in consumer industries with those in the capital goods sector will tell us if there has been any change in underlying economic growth dynamics.
Third, the bank balance sheets problem is, right now, perhaps the biggest risk to economic stability. Despite the clean-up effort, investors are still wary because nobody knows whether the worst is over. The new results season will give us important clues about the banking mess.