Earnings growth has likely peaked for now because companies have been relying on cost cutting, rather than growth, to boost profitability, says Ron Sloan, a senior portfolio manager at Invesco. Analysts currently forecast that fourth-quarter 2012 earnings for S&P 500 companies will increase 3.3 percent, according to S&P Capital IQ. That compares with 8.4 percent from the same period a year earlier.
“We have to make this transition….from depending on margins and cost-cutting to an old-fashioned, animal spirits, industrial recovery where companies are willing to spend money to hire people,” said Invesco's Sloan.
Federal Reserve Bank of Chicago President Charles Evans, an alternate member of the Fed's Open Market Committee, said Monday in a speech in Hong Kong that central banks should help create conditions to foster “robust demand growth” as the U.S. and other advanced economies try to reduce debt.
President Barack Obama is currently urging Congress to increase the nation's borrowing limit so it can continue paying its bills. The government has hit its $16.4 trillion debt limit and is expected to run out of ways to meet all of its obligations around March 1, perhaps earlier. Republicans wants spending cuts in exchange for raising the debt ceiling.
Failure to lift the borrowing limit, or debt ceiling, would be “a self-inflicted wound” to the economy and cause turmoil on financial markets, Obama told a White House news conference on Monday.
The yield on the 10-year Treasury note, which moves inversely to its price, was little changed at 1.86 percent.