Markets, Economy

Weekly Kickstart (10/22/2018-10/26/2018)

10/22/18 8:00 AM

iStock-626627280.jpgStocks edged higher last week, as the S&P 500 rose by 0.02 percent to 2,767.78. That left the benchmark index up 3.52 percent year-to-date, and just 5.56 percent below the record close. Although equities struggled to hold on to gains from earlier in the week, many investors remain optimistic due to expectations for another strong corporate earnings season. Indeed, the Q3 2018 earnings growth rate for the S&P 500 is projected to be 19.2 percent, according to FactSet. If true that would be the 3rd-highest growth rate recorded since the first quarter of 2011 and surpassed only by Q1 and Q2 of this year. All eleven sectors are predicted to report year-over-year earnings growth, including seven sectors that are projected to report double-digit growth (led by the Energy, Financials, and Materials sectors). Further, 74 companies listed on the S&P 500 have issued negative earnings per share (EPS) guidance for Q3, and 25 firms have issued positive EPS guidance.

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With negative guidance significantly outnumbering positive guidance, there is clearly a lot of potential for upside surprises this earnings season. In fact, of the 17 percent of companies in the S&P 500 that have already reported their Q3 results, 80 percent have beat their average earnings per share estimate, and 64 percent have beat their mean sales estimate. Should this trend continue it will provide investors with another reason to capitalize on the recent weakness in the market. However, with a lot of uncertainty still surrounding global trade relations, monetary policy, and the rapidly approaching midterm elections, volatility could remain elevated in the near-term. As a result, retail investors should continue to focus less on the day-to-day fluctuations in stock valuations and more on the long-term goal of amassing a large retirement nest egg. Assistance is available through the consistent use of tax-advantaged savings vehicles, dollar-cost averaging, and regularly consulting with a professional financial advisor. As always, we are here to help with any questions you may have.

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To recap a few of the things we learned about the economy last week, the positives included that mortgage rates decreased, homebuilder confidence improved, single-family building permits rose, regional manufacturing activity firmed, industrial production increased, capacity utilization expanded, first-time claims for unemployment benefits held near a half-century low, and the number of job openings in America climbed to a record high. As for the negatives, existing home sales declined, housing starts fell, mortgage applications plunged to a roughly two-decade low, and retail sales growth cooled. This week the pace of economic data slows down but there are still a few important reports on manufacturing, housing, and employment scheduled to be released, along with the first official estimate from the government of U.S. gross domestic product (GDP) growth during the third quarter of 2018.

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**A more detailed snapshot of the U.S. economy can be found here.**

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Sources: Econoday, FactSet, FRBSL

Post author: Charles Couch

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