Markets, Economy

Weekly Kickstart (11/18/2019-11/22/2019)

11/18/19 8:00 AM

iStock-626627280.jpgStocks continued higher last week, as the S&P 500 rose by 0.89 percent to 3,120.46. That was another new all-time closing high and it left the benchmark index up 24.48 percent 2019-to-date. Although the focus in the financial media recently has been on the trade war, monetary policy, and the upcoming election (future tax rates), another important issue ever present in the minds of investors is the trend in corporate earnings. Indeed, several times this year we noted that even though profit growth was cooling, analysts’ predictions had perhaps become overly pessimistic and therefore created the potential for a lot of upside surprises. Once again this is essentially how the latest earnings season has played out because with nearly all (92 percent) of the companies in the S&P 500 having now reported their Q3 profit results, 75 percent have beat their average earnings per share estimate, according to FactSet.


That is an above-trend beat rate and the market is also rewarding companies more than usual for reporting better-than-expected numbers. Six sectors in Q3 have reported year-over-year earnings growth, led by Utilities and Healthcare, and five sectors have reported an annual decline in earnings, with weakness most pronounced in the Energy, Materials, and Information Technology industries. For many firms a negative year-ago comparison was to be expected considering that earnings growth shot higher after the Tax Cuts and Jobs Act of 2017 lowered the corporate tax rate in America to a more globally-competitive level, but policy uncertainty has likely exacerbated some of the declines this year. A few of these risks appear to have abated recently and most analysts see earnings growth returning to positive territory in 2020. However, many near-term obstacles remain for the market, so it would not be too surprising if volatility picks up following this multi-week surge in stock prices. Moreover, with equities once again at record highs, some regular investors may benefit from consulting with a professional financial advisor and making sure their positioning is properly aligned with their retirement objectives. As always, we are here to help with any questions you may have.


To recap a few of the things we learned about the economy last week, the positives included that mortgage applications jumped, small business owner confidence firmed, retail sales growth rebounded, and household, wholesale, and trade-related inflation pressures remained muted. As for the negatives, gauges of regional factory activity continued to send mixed signals, industrial production fell, capacity utilization declined, and the number of Americans making first-time claims for unemployment benefits rose to the highest level since June. This week the pace of economic data slows down slightly but there are still a few important reports on housing, manufacturing, and consumers scheduled to be released, along with the potentially market-moving minutes from the last Federal Open Market Committee meeting due out on Wednesday.


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Sources: Econoday, FactSet, Twitter, FRBSL

Post author: Charles Couch