December Earnings & a Presidential Week – Weekly Update for January 17, 2017

2017-01-09 Blog ImageAs we look back on markets last week, we see mixed results with none of the major domestic indexes gaining or losing more than 1%. The S&P 500 was down 0.10% for the week, and the Dow gave back 0.39%, yet again failing to reach 20,000. On the other hand, the NASDAQ increased by 0.96% and reached its sixth record close in 2017 on Friday—pushed by a 1.36% rally for Facebook after Raymond James upgraded its stock. International stocks in the MSCI EAFE added 0.82%.

What We Saw Last Week

Big banks reported earnings. Earnings season is upon us. On Friday, we saw JPMorgan Chase, Bank of America, and PNC Financial beat profit expectations. These positive results add some weight to the post-election financials rally, where financial-sector equities in the S&P 500 have added 17% since the election. A number of other banks will report this week, and we will look to see if their performance also matches the growth we have seen so far.

Retail sales grew. The December monthly retail sales report showed a 0.6% increase, slightly below the 0.7% consensus expectations. With this growth, retail sales are now up 4.1% in the past year. However, not all retailers are performing well. General merchandise stores are suffering as consumers continue to shop online and move away from in-person retail stores. We see the results of this trend in declining retails sales numbers and large companies announcing store closures, including Macy’s, Sears, CVS, and many more.

Consumer sentiment was high but divided. The University of Michigan’s monthly report on consumer sentiment was 98.1, just below predictions but still near highs we have not seen since 2004. One interesting finding in the report is a strong partisan divide in consumer confidence. Richard Curtin, director of the consumer survey, described “extreme differences” between people’s expectations for whether new political policies would help or hurt the economy. He reminded people that the most impact on consumer sentiment will come from “actual changes in the economy” as a result of Trump’s work, which we will have to wait a few months to see.

What We’re Looking at in the Week Ahead

Earnings season continues. The markets will be watching earnings closely during this four-day trading week—specifically to see if other major financial institutions also beat expectations. Some analysts believe that to keep the current market rally going and demonstrate that there is weight behind the post-election growth, we’ll need to see excellent reports from most companies.

A number of high-profile companies report this week, including:

  • Morgan Stanley
  • Goldman Sachs
  • Citigroup
  • American Express
  • Netflix
  • IBM
  • UnitedHealth Group
  • General Electric Co.

Donald Trump becomes President. While earnings reports will be important to track, another event looms larger in many people’s minds: Donald Trump’s inauguration. After he takes the oath of office Friday morning and becomes President of the United States, we will begin to see how the market’s expectations for Trump’s policies match reality.

From trade to taxes to infrastructure and beyond, the next few months will give us a number of insights into how U.S. policies may change. Uncertainty remains, and we will watch for political developments that may affect the markets. In addition, we will continue to focus on the fundamentals that provide deep insight into how the economy is performing—and how we can strive to keep you on track toward your goals.

ECONOMIC CALENDAR:

Monday: U.S. Markets Closed in Observance of Martin Luther King, Jr. Day
Wednesday: Consumer Price Index, Industrial Production, Housing Market Index
Thursday: Housing Starts

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Earnings Drive Record High Close – Weekly Update for August 15, 2016

Earnings Drive Record High Close - Weekly Update for August 15, 2016

Stocks rallied late last week as the S&P 500, Dow, and NASDAQ all closed at record highs on Thursday for the first time since New Year’s Eve 1999. The NASDAQ also notched a seventh week of gains, its longest winning streak since 2012. For the week, the S&P 500 gained 0.05%, the Dow grew 0.18%, the NASDAQ added 0.23%, and the MSCI EAFE grew 2.73%.

Earnings season is mostly behind us, and, with nearly all of the S&P 500 companies having reported in, we have a good overall picture of last quarter’s performance. Total earnings for the index so far were down 3.7% on -0.7% lower revenues relative to Q2 2015. However, 71.1% have managed to beat profit expectations, which has given stocks a boost in recent weeks.

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Here’s what we can take away from the second quarter:

Though earnings growth is still negative, it’s a vast improvement over what we saw in the first quarter from the same group of companies. Results are also better than the 4-quarter moving average. Revenue growth is also negative, showing that many companies are still (seven-plus years into the economic recovery) struggling with slow demand.

The energy sector is still bringing down overall earnings. Excluding Energy, earnings for remaining S&P 500 companies would be slightly up 0.1% on 2.4% higher revenues.

Third quarter earnings growth estimates are steadily coming down, indicating that business leaders are not expecting standout performance. Are companies sandbagging expectations to improve the odds of a positive surprise? That’s highly possible. However, we’re not expecting to see meaningful growth pick up this quarter.

Next week, we’ll get a look at notes from the last Federal Reserve Open Market Committee meeting. We’ll analyze these meeting minutes to get a sense of what the Fed is thinking about the economy and see how different members of the committee are voting. The rest of the week is also full of important economic releases, which could stoke volatility if we see any surprises. When markets experience a sustained rally over a period of weeks, it’s not surprising when investors pause for a breather to reevaluate the data.

Have questions about how all of this data impacts your portfolio as an investor? We’d love to chat with you. Feel free to leave a comment below or reach out to us at hello@hzcapital.com if there is anything you’re curious about. As always, our goal is to make sure you’re informed on the latest economic updates.

ECONOMIC CALENDAR:

Monday: Empire State Manufacturing Survey, Housing Market Index, Treasury International Capital

Tuesday: Consumer Price Index, Housing Starts, Industrial Production

Wednesday: EIA Petroleum Status Report, FOMC Minutes

Thursday: Jobless Claims, Philadelphia Fed Business Outlook Survey

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HEADLINES:

Consumer sentiment increases in August. A measure of American optimism about the economy increased this month, hopefully supporting future consumer spending.

Retail sales remain flat in July. Sales of retail goods remained surprisingly unchanged last month as Americans cut back on purchases, moderating expectations of a surge in consumer spending this quarter.

Business inventories rise slightly in June. Business stockpiles edged higher in June as sales surged, suggesting U.S. firms are having an easier time moving products off shelves.

Job openings edge higher in June. The number of available jobs rose slightly over May, suggesting moderate growth. An increased number of factory job postings could indicate movement in the manufacturing sector.

How a Few Key Players Boosted Performance This Week Weekly Update – April 27, 2015

Image courtesy of FreeDigitalPhotos.net/renjith krishnan

Image courtesy of
FreeDigitalPhotos.net/renjith krishnan

Markets rallied last week, lead by a surge in tech stocks that brought the NASDAQ and S&P 500 to new record closes. For the week, the S&P 500 gained 1.75%, the Dow grew 1.42%, and the NASDAQ added 3.25%.1

After weeks of uncertainty, markets shook off the doldrums and rallied on the back of earnings beats from market heavyweights. Without any major economic events having occurred last week, market performance was driven by reactions to the earnings reports of a few key players.2

Have earnings reports justified the stock market’s reaction? Not really. Right now, it seems as though expectations going into earnings season were so low that any positive news was greeted with cheers. While total profits for 202 S&P 500 companies were up 8.7% over first quarter 2014, revenues were essentially flat. Weak revenue numbers indicate that companies struggled with slow demand last quarter and achieved profitability through cost-cutting measures. Looking ahead at the rest of earnings season, some analysts project that overall earnings for S&P 500 companies will be flat on 5.1% lower revenues.3 Worse, currency headwinds from a strong dollar and global economic issues may affect demand in the second quarter as well.

The week ahead is packed with important economic events: a Federal Reserve Open Market Committee meeting, the first estimate of Q1 economic growth, and a raft of company earnings reports. No interest rate changes are expected at the Fed’s policy-setting meeting, but officials may clarify their thoughts on first quarter economic performance.

Right now, the future timing of rate changes is anyone’s guess. Economists are focusing on determining how much of weak first quarter data is weather related and how much was due to lingering economic forces like a strong dollar and soft global growth. Though a June rate hike isn’t off the table, some Fed officials are hinting that higher interest rates might come later in the year.4 With respect to markets, we can expect further volatility as investors digest earnings reports and economic data.

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ECONOMIC CALENDAR:

Monday: Dallas Fed Mfg. Survey

Tuesday: S&P Case-Shiller HPI, Consumer Confidence

Wednesday: GDP, Pending Home Sales Index, EIA Petroleum Status Report, FOMC Meeting Announcement, 2:00 PM ET

Thursday: Jobless Claims, Personal Income and Outlays, Employment Cost Index, Chicago PMI

Friday: Motor Vehicle Sales, PMI Manufacturing Index, ISM Mfg. Index, Consumer Sentiment, Construction Spending

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HEADLINES:

Weekly jobless claims rise for third straight week. Though the number of Americans claiming new unemployment benefits rose again last week, the underlying trend shows that the labor market is improving. Seasonal issues like school breaks and Easter holidays tend to make numbers more volatile this time of year.5

Tight housing supply holding back market. A limited number of homes for sale is keeping back a spring surge in the housing market. Nearly three-quarters of the available homes for sale are “stale” and have sat on the market for more than a month with little buyer interest. High prices may be turning off prospective buyers.6

No Greek deal in sight. As the deadline to a Greek debt bailout edges closer, no permanent solution is emerging. Greece is having trouble repaying loans to Eurozone creditors, and lenders warned Friday that no fresh aid will come unless the cash-strapped nation agrees to serious economic reforms.7

Oil prices diverge. Though U.S. crude oil prices fell on worries of another production glut, international Brent crude prices rose to 2015 highs as fighting in Yemen threatened supplies. This push-pull in prices makes it hard for analysts to predict the direction of prices.8

Earnings Season Is Still Young: Here Are the Facts Weekly Update – April 20, 2015

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Image courtesy of
FreeDigitalPhotos.net/Stuart Miles

Events in China and Europe triggered a modest worldwide sell-off last week, and lackluster corporate earnings in the U.S. contributed to market doldrums. For the week, the S&P 500 fell 0.99%, while the Dow and the NASDAQ both lost 1.28%.1

Investors sent stocks lower early in the week as they grappled with revenue growth problems in first quarter earnings reports. Nearly three-quarters of the S&P 500 companies that have reported earnings so far have beat profit expectations, but fewer than half of those companies have exceeded revenue expectations.2 These results mean that firms are overcoming weak demand by carefully managing their expenses. Even so, cost cutting has its limits if sales don’t eventually pick up.

However, earnings season is still young, and several big-name U.S. firms are scheduled to report this week. Once firms such as Morgan Stanley [MS], Amazon [AMZN], Boeing [BA], and General Motors [GM] release their data, investors may have a better view into whether markets will snap back from last week’s fall.

U.S. investors got nervous last week when fears that Greece will exit the euro (the so-called Grexit) rose again after negotiations faltered between Greek leaders and creditors. A Greek exit from the euro would likely have serious consequences for the rest of the Eurozone. Both sides must come to an agreement soon if Greece is to avoid defaulting next month on loans. In response to the tension, bond yields on Greek debt rose and European stocks suffered their biggest fall since the middle of January.3,4

Meanwhile, new stock trading rules in China sparked more investor concerns. Chinese regulators introduced new rules banning some kinds of high-margin trading. Higher margins put traders at risk of greater losses if stock markets drop. China wants to protect an equity market that may be overheating and an expanding economy that may be cooling off.5

This week, investors are looking forward to a heavy flood of earnings reports as first-quarter earnings season kicks into high gear. Though it’s too early to predict overall earnings, the tough growth picture – largely due to headwinds from the strong U.S. dollar, weak overseas growth, and low oil prices – may make it hard for companies to beat their revenue expectations.

ECONOMIC CALENDAR:

Wednesday: Existing Home Sales, EIA Petroleum Status Report

Thursday: Jobless Claims, PMI Manufacturing Index Flash, New Home Sales

Friday: Durable Goods Orders

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HEADLINES:

Rising gas prices nudge inflation up. The consumer price index, an indicator of inflation, increased 0.2% in March, thanks to higher oil and gas prices, although it’s still down 0.1% for the past 12 months. The slight rise suggests inflation may start heading toward the Federal Reserve’s 2.0% target, if the strong U.S. dollar doesn’t stand in its way.6

Consumer sentiment rises. An early measure of consumer confidence was higher in April than in March, surpassing economists’ expectations and indicating that Americans may be more optimistic about their prospects this quarter.7

Homebuilders feel more confident. An index that tracks expectations of future home sales reached its highest level of the year in April, slightly beating expectations. Job growth and low interest rates are likely contributing to homebuilder optimism about the housing market.8

Retail sales rebound in March. After a slow start to the year, retail sales rose 0.9% in March as Americans went shopping. Higher motor vehicle, furniture, and clothing sales show that the consumer sector is still strong, potentially raising first quarter economic growth numbers.9

Markets: Signal, Noise & Fundamental Factors Weekly Update – October 27, 2014

Image courtesy of FreeDigitalPhotos.net/cooldesign

Image courtesy of
FreeDigitalPhotos.net/cooldesign

After several weeks of dismal performance, equities shook off their worries and rallied enthusiastically on solid quarterly earnings giving the S&P 500 its biggest weekly gain of the year. For the week, the S&P 500 gained 4.12%, the Dow grew 2.59%, and the Nasdaq surged 5.29%, erasing much of their losses from previous weeks.1

Last week, we discussed some of the factors behind the recent pullback; what changed in a single week? Fundamentally, very little. However, investors regained their optimism on the reminder that many companies are still doing quite well in the economic recovery. Traders also took the opportunity to buy the dip, which added buying pressure, pushing markets up.

Markets are fundamentally forward-looking, and while global growth fears remain, investors are looking at the earnings growth picture, and realizing that the picture looks reasonably good. Not great, to be sure, but so far, S&P 500 firms are reporting 4.1% year-over-year earnings growth on 4.7% revenue growth, with about 41% of the S&P 500 firms reporting as of October 24.2 If we leave out the struggling Finance sector, earnings growth jumps to 5.5%. These results are largely in line with performance in recent quarters, though earnings growth is below the four-quarter average, largely because of weak performance in the Finance and Technology sectors.3  All told: Firms seem to be holding their own and turning profits, despite some weak demand issues.

Does this mean that the pullback is over? Hard to say. Markets are responding more to perception and noise than they are to fundamental factors right now. That means that more turbulence – and perhaps downward movement – can be expected in coming weeks. On the other hand, if earnings and economic fundamentals continue to look good, we may see a continuation of the rally.

Looking ahead, earnings reports from the energy and healthcare sectors will dominate this week; the two sectors represent opposite sides of the market. Healthcare was one of the big success stories of the year, while energy companies have struggled with declining oil prices.4 While analysts expect weak results from many energy firms, they will be paying close attention to forward guidance; if energy leaders foresee a weak global economic environment, investors could respond with another attack of the nerves.

The week ahead is also heavy in economic data, with the Federal Reserve’s Open Market Committee meeting and a first look at Q3 Gross Domestic Product (GDP). The Fed is widely expected to announce the end of quantitative easing at this week’s meeting; analysts also expect the formal announcement at the end of the meeting to signal a more cautious Fed and their desire to let economic data decide future policy moves.5

Altogether, a big week ahead. We’ll keep you informed.

 

ECONOMIC CALENDAR:

 

Monday: Pending Home Sales Index, Dallas Fed Mfg. Survey

Tuesday: Durable Goods Orders, S&P Case-Shiller HPI, Consumer Confidence

Wednesday: EIA Petroleum Status Report, FOMC Meeting Announcement

Thursday: GDP, Jobless Claims

Friday: Personal Income and Outlays, Employment Cost Index, Chicago PMI, Consumer Sentiment

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HEADLINES:
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Jobless claims remain close to 14-year low. Jobless claims inched higher last week, but stayed below pre-recession levels, suggesting that the labor market is firming up. The four-week moving average of claims, considered to be a less volatile measure, fell to the lowest level since May 2000.6

New home sales at six-year high. Purchases of new single-family homes rose to a multi-year high in September, though revisions to August numbers suggest sales remain on a lower trend. Single-family home sales tend to be volatile, but lower mortgage rates could spur more sales.7

European Central Bank fails 25 in stress test. The ECB failed 25 Eurozone lenders during a series of financial health tests. Though banks have improved markedly since last year’s tests, a few still have to raise more capital to protect against another potential financial crisis.8

Inflation indicator remains tame. Overall consumer prices rose a tepid 0.1% in September after falling 0.2% in August. Year over year, headline inflation is up 1.7%, indicating that inflation remains soft and is giving the Federal Reserve breathing room to manage interest rates.9