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.

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

What’s Grown At the Fastest Pace in 4 Years? Weekly Update – March 2, 2015

Image courtesy of FreeDigitalPhotos.net/hywards

Image courtesy of
FreeDigitalPhotos.net/hywards

Stocks ended the week mixed after losses related to a lower fourth-quarter Gross Domestic Product estimate. However, after a lackluster January, the major indices ended February on an upbeat note, with the S&P 500 posting a 5.5% gain.1 For the week, the S&P 500 lost 0.27%, the Dow lost edged down 0.04%, and the NASDAQ gained 0.15%.2

Though we’re two-thirds through with the first quarter of 2015, investors were thinking about fourth-quarter 2014 GDP last week. The revised estimate shows that the economy grew 2.2% in the final three months of the year, lower than the 2.6% originally reported. However, the good news is that consumer spending, one of the largest contributors to the economy, grew at the fastest pace in four years.3 A significant downward revision of business inventories, a measure of how optimistic U.S. firms are about future demand, was mostly responsible for the lower GDP report.4

Federal Reserve chair Janet Yellen gave investors some more guidance about interest rates in speeches before the House and Senate. Though she still preaches patience, she also indicated that the central bank might raise rates as early as July. Though the rate raise may give stocks the jitters, banks may respond by raising consumer rates to compete for your business. On the other hand, higher rates could drag on the housing market.5

With earnings season largely over, we can start drawing some conclusions about how U.S. companies did in the fourth quarter. Overall, Q4 earnings gave us a mixed picture. Out of 465 S&P 500 companies, earnings were up 6.5 percent over fourth quarter 2013, but revenues were up just 1.6 percent.6 These results suggest that many firms are still struggling with weak demand. Many firms also issued low guidance for the first quarter of 2015, indicating that they’re worried about their growth prospects this year – this squares with the lower business inventories data found in the Q4 GDP report.7 Hopefully, we’ll see lower energy prices push up spending and help U.S. companies beat their earnings estimates.

Looking ahead, analysts will be focusing on the February jobs report this week, which they hope will show that the labor market continues to recover. Investors will spotlight wage growth, a key figure that indicates how much more money workers have in their wallets.8 Economists anticipate that improving job prospects and low gasoline prices could support increased consumer spending this quarter.

ECONOMIC CALENDAR:

Monday: Personal Income and Outlays, PMI Manufacturing Index, ISM Mfg. Index, Construction Spending

Tuesday: Motor Vehicle Sales, Janet Yellen Speaks 8:15 PM ET

Wednesday: ADP Employment Report, SM Non-Mfg. Index, EIA Petroleum Status Report, Beige Book

Thursday: Jobless Claims, Productivity and Costs, Factory Orders

Friday: Employment Situation, International Trade

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HEADLINES:

Pending home sales rises to highest level since 2013. A measure of houses under contract rose in January as better credit conditions and more jobs boosted housing market activity. Since we are approaching prime home buying season, analysts hope the trend will continue into the spring.9

New single-family home sales drop slightly. Sales of newly built houses edged downward in January, possibly because of cold winter weather in the Northeast. However, sales are up 5.4% since January 2014 in a hopeful sign for the sluggish housing market.10

Durable goods rise in February. Orders for long-lasting manufactured products – like cars, refrigerators, and electronics – climbed 2.8% from January, indicating that businesses expect to be able to sell big-ticket items in coming months.11

Consumer sentiment drops slightly in February. Icy weather caused a gauge of consumer sentiment to slip last month. Despite the harsh weather, American confidence in the economy remains near eight-year highs.12

What Clues Did the First Month of the Year Leave Us? Weekly Update – February 2, 2015

Image courtesy of FreeDigitalPhotos.net/Cooldesign

Image courtesy of
FreeDigitalPhotos.net/Cooldesign

Markets were driven lower in another volatile week of trading, ending the first month of 2015 in the red. For the week, the S&P 500 lost 2.77%, the Dow fell 2.87%, and the Nasdaq dropped 2.58%.[1]

One of the major contributors to the week’s losses was an unexpected miss in fourth quarter economic growth. The first estimate of Gross Domestic Product (GDP) showed that the economy grew an underwhelming 2.6% in the last three months of 2014. This is a significant drop from the 5.0% growth the economy saw in the third quarter and below economists’ expectations of 2.8%-3.0% growth. However, consumer spending was higher than expected, showing that Americans are still buying. Also, keep in mind that this is just the first estimate of GDP growth. [2] A lot of economic data has yet to be analyzed, and we can hope for upward revisions in the months to come.

Earnings season marches onward and the news is mixed. While the reports we have seen from 228 S&P 500 companies show that earnings are up 5.5% over the same period in 2013, revenues are up just 1.7%.[3] Overall, U.S. companies appear to be struggling with three factors:

  • Falling oil prices, which are seriously affecting energy companies and interrelated businesses.
  • The strength of the U.S. dollar, which is hitting companies that depend on foreign demand hard. A strong dollar makes it more expensive to buy U.S. products.
  • Weak global economic growth. This factor is also pressing down forward guidance from companies, many of which are expecting a tough business environment in 2015.[4]

Even if overall earnings numbers may not look inspiring, there are a lot of individual success stories in each sector. Though volatility is stressful, it can provide opportunities for investors who can be flexible. Part of what we do for our clients is look for those opportunities for growth in every market environment.

Oil prices continued to slide though some analysts believe we may be approaching an oil price floor. One industry insider believes that oil prices could double by the end of 2015 as oil companies respond to the supply glut by slowing down production.[5]

Looking forward, the week ahead is filled with more economic reports, including the January Employment Situation Report, which will hopefully show continual improvement in the labor market. Markets are likely to remain volatile in the days and weeks ahead, but we can hope that positive data might encourage investors to “buy the dip.”

ECONOMIC CALENDAR:

 Monday: Personal Income and Outlays, PMI Manufacturing Index, ISM Mfg Index, Construction Spending

Tuesday: Motor Vehicle Sales, Factory Orders

Wednesday: ADP Employment Report, ISM Non-Mfg. Index, EIA Petroleum Status Report

Thursday: International Trade, Jobless Claims, Productivity and Costs

Friday: Employment Situation

Data as of 1/30/2015 1-Week Since 1/1/15 1-Year 5-Year 10-Year
Standard & Poor’s 500 -2.77% -3.10% 11.19% 17.16% 7.03%
DOW -2.87% -3.69% 8.31% 14.10% 6.46%
NASDAQ -2.58% -2.13% 12.42% 23.17% 12.77%
U.S. Corporate Bond Index 1.59% 2.71% 5.68% 2.71% 1.18%
International -0.28% 0.44% -2.99% 3.37% 1.83%
Data as 1/30/2015 1 mo. 6 mo. 1 yr. 5 yr. 10 yr.
Treasury Yields (CMT) 0.01% 0.07% 0.18% 1.18% 1.68%

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.

HEADLINES:

Durable goods fall sharply in December. Orders for long lasting U.S. manufactured goods dropped 3.4% in December after falling 2.1% in November, raising questions about the health of one of the economy’s most important sectors. Though demand for automobiles grew, a core indicator of business investment fell for the fourth straight month.[6]

Consumer sentiment brightens in January. Optimism about better job and wage prospects sent a measure of U.S. consumer sentiment to its highest level since 2004. Hopefully, increased confidence in the economic expansion will translate into higher consumer spending this quarter.[7]

Chinese factory growth slides. China’s manufacturing sector unexpectedly shrank in January to the lowest level since 2012. Since factories often experience a bump just before an important spring holiday, the drop could presage further gloom for China’s economy.[8]

Jobless claims fall to 14-year low. The number of Americans filing new claims for unemployment benefits fell to the lowest level since 2000. Claims had been trending higher in previous reports, so the sudden drop is an indicator that the labor market is returning to its positive trend.[9]

[1] http://goo.gl/RPwDsE

[2] http://www.cnbc.com/id/102383485

[3] http://www.zacks.com/commentary/37601/3-factors-define-q4-earnings-season

[4] http://www.zacks.com/commentary/37601/3-factors-define-q4-earnings-season

[5] http://www.cnbc.com/id/102381893

[6] http://www.usatoday.com/story/money/business/2015/01/27/durable-goods-orders-december/22370639/

[7] http://www.reuters.com/article/2015/01/30/us-usa-economy-sentiment-idUSKBN0L31QI20150130

[8] http://www.reuters.com/article/2015/02/01/us-china-economy-pmi-idUSKBN0L50ZX20150201

[9] http://www.marketwatch.com/story/jobless-claims-drop-to-14-year-low-2015-01-29

Friday’s “Relief Rally” Weekly Update – January 20, 2015

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Image courtesy of
FreeDigitalPhotos.net/Stuart Miles

Stocks experienced another rollercoaster week, pummeled by a dismal global growth forecast and missed earnings reports. However, markets ended a four-day losing streak on Friday with a “relief rally” as energy prices rebounded slightly.1 For the week, the S&P 500 lost 1.26%, the Dow fell 1.27%, and the Nasdaq dropped 1.48%.2

The World Bank underscored investors’ concerns about the global economy by slashing its global growth forecast for 2015 and 2016. Citing disappointing growth in Europe and concerns about some emerging markets, the development organization cut its predicted global economic growth rate to 3.0% from 3.4% in June.3 Though U.S. growth remains strong, slowing demand overseas may hurt U.S. firms.

December holiday sales reports arrived, and the news wasn’t very jolly, showing that overall retail sales dropped 0.9%. Cheaper gas, earlier shopping, and significant discounts all contributed to the drop, and retailers have chosen to call the season a win. The National Retail Federation says that overall holiday spending rose 4.0%, making it the best season since 2011. Investors were less enthusiastic about the data, which could indicate weakness in consumer spending.4

Earnings season shifted into high gear last week, bringing total S&P 500 company reports to 37. So far, the news isn’t great. Financial companies are the first large group to report in, and although there are some individual success stories, the Major Banks sector (which includes companies like JP Morgan, Wells Fargo, and Citigroup) dragging, with earnings down 13.7% since the same time last year. However, outside the Finance sector, the picture is brighter, with total earnings up 17.4% so far on higher revenues.5 Though it’s still early in the season, S&P Capital IQ predicts that overall earnings for the S&P 500 increased 6.5% in the fourth quarter.6 Though the U.S. demand picture appears to be strengthening, external factors like oil prices and the dollar’s strength relative to other currencies is likely to significantly affect company performance this year.

Does January’s rocky start bode ill for the rest of 2015? Probably not. Right now, Wall Street is preoccupied with the murkiness of recent data. Macro issues like oil prices, the dollar’s strength, central bank moves, and global growth forecasts are overriding individual company data, which makes it hard to pick winners and losers. Fundamental trends within the U.S. economy haven’t changed: U.S. firms are hiring, Americans are more confident about their prospects, and many sectors of the economy are showing improvement. Markets are closed on Monday, but the week ahead is filled with more earnings reports as well as Tuesday’s State of the Union address by President Obama.

ECONOMIC CALENDAR:

Tuesday: Housing Market Index

Wednesday: Housing Starts

Thursday: Jobless Claims, PMI Manufacturing Index Flash, EIA Petroleum Status Report

Friday: Existing Home Sales

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NY Post Twitter feed hacked, traders respond.
Investors were shocked when the New York post tweeted Friday that the Federal Reserve was holding an emergency meeting to set interest rates. Though the paper quickly regained control of the Twitter account and deleted offending tweets, some traders may have responded to the news. Lessons? Don’t believe everything you read.7HEADLINES:

Swiss franc soars after 1.20 euro peg dropped. The central bank of Switzerland abandoned a 3-year-old currency agreement by dropping the floor on the Swiss franc Thursday, allowing it to float freely against the euro. Traders responded by rushing for the euro exits, buying Swiss francs and pushing the currency 30% higher against the euro.8

U.S. import prices post record drop in December. The cost of U.S. imports fell by the largest amount since 2008 as petroleum costs continued to plunge. Import prices fell by 2.5% in December, dropping 5.5% for all of 2014. Weak import inflation may help stave off Fed rate hikes.9

U.S. foreclosures down 64% from 2010 peak. The number of foreclosed U.S. homes fell again in November, bringing monthly foreclosures down 64% since the peak in September 2010. Though foreclosure activity is falling, analysts believe it won’t reach normal levels for at least two years as distressed loans continue to move through the system.10