Displaying items by tag: earnings

(New York)

The market seems to have finally regained its footing after a very turbulent couple of weeks. This selloff felt different than any in recent memory and serious damage to the market’s psyche seems to have been done. But what might it say about the wider economy? The answer is little, according to the Wall Street Journal. The selloff will probably be just that, a market fall. In reality, tech companies, which led the losses, reported very solid earnings, with margins expanding very well. Little can be drawn from the results that might show the economy is in trouble.

FINSUM: The only aspect of this selloff we are somewhat worried about is how it might impact consumer confidence and spending this holiday season. However, so long as the market stays strong this month, we expect the impact to fade.

(New York)

So where is the market headed next? That is the question on every investor’s mind. Guggenheim Partners’ CIO has just made a bold call. His answer—much higher. He argues that stocks are strong and increasingly cheap, which will spark a rally. “Stocks are cheap based on forward multiples and should rally by 15%-20% from here unless policy uncertainty around China and tariffs remains in place”. He continued, saying “I think we’re going through a classic seasonal adjustment”, but that it is paving the way for a move higher.

FINSUM: We think that once the panic passes, which it may have this weekend, investors will realize that stocks are less expensive than before Trump was elected and the economy is going strongly.

(Washington)

For the most part, President Trump has been seen as quite positive for markets. The big rally in his first year cemented that idea, and for most of this year, stocks were in good shape. However, here is an interesting fact—equity valuations are now lower than when he took office. As the media puts it, “the Trump Bump is turning into the Trump discount”.

FINSUM: Two thoughts occur here. The first is that a big reason why valuations have fallen is because earnings are so good, and a lot of that has to do with the Republican-led tax package, so it is not fair to turn that into a negative. Secondly, most of the market trouble stems from the trade war, so it is more an isolated case of policy than a broad effect. In fact, what could be better than good share appreciation without a rise in valuations? It is exactly what you are looking for as an investor—something that earns well but doesn’t look increasingly overpriced.

(New York)

The market is so turned on its head right now that yesterday’s 126 point drop in the Dow seems like good news. The market has been so bad lately, that the fact that yesterday’s potential 550 point loss shrunk to only 126 points seemed like a positive development. Investors are worried about the idea of peak earnings, but analysts insist they are overreacting, with many reiterating that earnings will continue to be strong and the economy will stay in expansionary mode. Kate Warne, a strategist at Edward Jones, says that investors will realize this is not the end of the economic cycle just yet. “It’s not peak earnings, it’s peak earnings growth”, says Warne, continuing “The pace is still positive, just the growth rate isn’t as high as it was”.

FINSUM: We tend to agree with the strategists. If earnings still continue to grow in the next couple of quarters and the economy stays strong, it is hard to imagine that stocks will keep falling.

(New York)

There are a lot of dark clouds hanging over the market right now—trade war, rates, politics, Italy etc. However, one of the strong bright spots has been earnings. Company performance has been very strong, which has been a real boost against the headwinds. That is why this article scared us so much. Barron’s has run a piece analyzing earnings which shows that all is not what it seems. While earnings have been strong, with about three-quarters of companies beating estimates, what has been lost is that company’s are actually struggling with revenue, with only 58% beating estimates. That is the lowest percentage in six quarters, and shows that companies are having trouble hitting their sales goals.

FINSUM: Markets have reacted to this data, but not in a major way. We are quite worried about revenue struggles as it might indicate that consumers are tightening up and a recession could be on the way.