Displaying items by tag: earnings

(New York)

Corporate earnings are doing well and are forecasted to keep rising. Alongside those improvements in operating performance, one would expect stocks would likely keep rising. Not so fast, says Goldman Sachs, who says that earnings improvements will likely do little for stock prices. David Kostin, the firm’s chief US equity strategist, says that earnings’ influence on prices will be moderated by a number of factors. “The appreciation potential will be constrained by tightening monetary policy, a flattening yield curve, rising trade tensions, and the upcoming mid-term Congressional elections.”

FINSUM: In other words, stock market investors are dealing with much more than operating performance. We think the market will discount earnings even more than expected because a lot of the gains are being driven by the tax policy change, making the improvement temporary in nature.

(New York)

Equity investors need to accept a new truth, says the Wall Street Journal—that earnings and fundamentals have given way to a new “boss” of the markets. Instead of stocks trading based on the performance of companies, they are now trading almost squarely on movements in rates. Recent equity performance could not have made the new reality more clear—companies saw outstanding earnings performance, yet stocks have simply muddled through. The reason why—yields have been moving higher on Treasury bonds.

FINSUM: The current obsession with yields reminds us of the 2014-2015 mode for stocks, when everyone was tied up on whether the Fed would start hiking or not.

(New York)

If there was ever a counterintuitive sentence about stocks, it is the title to this article. However, that is what has proven to be true in the past. According to research produced by the Wall Street Journal, stock markets tend to perform poorly after great earnings seasons. The study found that over the last seven years, both US and European stocks tend to perform poorly following great earnings. Perhaps even more interestingly, when earnings undershot estimates, stocks tended to perform better than average.

FINSUM: This is a tough one to explain except by taking account of markets’ pre-pricing of earnings. Nonetheless, something of which to be mindful.

(New York)

There is a lot of consternation in the market about the direction of equities. Some fear for returns as higher rates and the possibility of a recession become clearer. However, the world’s largest asset manager has just come forth with position that sticks with US equities. The best way to summarize BlackRock’s view is that it thinks “fears of peaking earnings are overdone”. The manager believes that worries over macro concerns have overshadowed very strong fundamental performance.

FINSUM: So the question is how much of the great earning performance was simply because of the tax cut, and how much came from an improvement in the underlying businesses. That is key to understand before predicting where the market is headed.

(San Francisco)

For all the worries about tech companies and the threat of regulations, one of the best supporting points for the stocks was the strength of their underlying businesses. Despite suffering some losses in share price over the last couple of months, Facebook showed yesterday why the FANGS still look like a good buy. Net income in the first quarter was up 63% versus last year to $5 bn. Earnings per share was up 25% versus estimates. Revenue also jumped 49% versus last year.

FINSUM: Despite all the controversies, Facebook’s advertising business continues to rake in cash by the truckload.