Hixon Zuercher Capital Management

Fee-only Registered Investment Advisor in Findlay, Ohio 45840

Examining Earnings and Yields – Weekly Update for April 23, 2018

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Stocks posted moderate gains last week, as the S&P 500 added 0.52%, the Dow increased 0.42%, and the NASDAQ rose 0.56%. International stocks in the MSCI EAFE followed suit, gaining 0.41%.

We received numerous new data updates last week, and most provided positive news for the economy. Retail sales, housing starts, and industrial production all beat expectations and increased in March.

Amid last week’s primarily positive data updates, two key occurrences also affected markets:

  1. Corporate earnings
  2. Treasury yields

 A Closer Look

  1. Earnings Season Continued
    As of April 20, about 16% of S&P 500 companies shared their results for the 1st quarter, and over 80% of them beat earnings expectations. However, this solid performance has yet to impress investors. While most companies have exceeded earnings projections, their stocks haven’t reflected the growth.On the other hand, companies that have beaten their sales projections—but missed on earnings-per-share—have dropped an average of 4.4% on their release days.

    Takeaway: So far, corporate earnings are on the rise, but any companies that don’t beat estimates are experiencing considerable stock declines.

  2. Treasury Yields Rose
    The yield on 10-year Treasuries hit 2.96%—the highest point since 2014. At the same time, the 2-year yield climbed to its highest since 2008. When interest rates rise, companies have higher borrowing costs, and bonds become a more enticing alternative to stocks.Some investors are also concerned that the difference between the two Treasuries’ yields is too close. This occurrence, known as a flattening yield curve, can imply that investors are not confident in the long-term economic outlook.

    Takeaway: Rising Treasury rates are worth paying attention to. If they are a symptom of a growing economy, the markets should be able to handle them. However, if questions about economic growth accompany the increases, investors may worry.

What Is Ahead

We are now in earnings season’s busiest week, when more than a third of S&P companies will release their reports. Additionally, on Friday, April 27, the initial estimate of the 1st quarter Gross Domestic Product will come out.

All this information will help deepen our understanding of where the economy stands—and what may lie ahead. If you have any questions about current data or future projections, we are available to talk.

ECONOMIC CALENDAR

Tuesday: New Home Sales, Consumer Confidence
Thursday: Durable Goods Orders, Jobless Claims
Friday: GDP, Employment Cost Index, Consumer Sentiment

 

Earnings Season Begins – Weekly Update for April 16, 2018

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Market volatility continues. Stocks slid on Friday, April 13, but still held on to gains for the week. The S&P 500 increased 1.99%, the Dow added 1.79%, and the NASDAQ was up 2.77%. International stocks in the MSCI EAFE also rose, gaining 1.45%.

Similar to recent weeks, international events continued to sway markets: Concerns about trade disputes affected investor behavior. Meanwhile, escalating conflict in Syria may have weighed on people’s minds.

As we track these developments, we want to share insight about another important occurrence from last week: the beginning of corporate earnings season.

1st Quarter Corporate Earnings Season

  1. Expectations remain very high
    Analysts anticipate a particularly strong earnings season. Thomson Reuters data predicts that S&P 500 companies’ profits were 18.6% higher in the 1st quarter of 2018 than in 2017. If accurate, this increase would be the largest since 2011.
    So far, data seems on track. According to The Earnings Scout, 1st-quarter earnings growth is currently at 26.8%.
  2. Banks outperform but stocks drop
    On Friday, 3 major banks released their reports—and each beat projections for earnings and revenue. Despite this positive news, however, their stocks experienced sizable declines that contributed to overall market losses.
    Why would strong quarterly results create stocks losses?The markets anticipated this positive performance and had already priced it into the shares. As a result, any less-than-ideal news seemed to outweigh the expected earnings and revenue increases. In particular, 2 facts drove losses:
  • 1 bank may have to pay a $1 billion penalty
  • All 3 banks experienced slow loan growth

We are in the early stages of earnings season, and many major corporations still need to release their reports. In the coming weeks, we’ll continue monitoring these developments to better understand our economy. As always, please contact us if you have questions about how the data affects your finances and life.

ECONOMIC CALENDAR

Monday: Retail Sales, Housing Market Index
Tuesday: Housing Starts, Industrial Production
Thursday: Jobless Claims

April 2018 Market Update Video

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Quarter 1 is behind us now, and a lot happened with the economy. I will discuss 4 key takeaways from the major economic events and headlines from Q1,  how they could have an impact on you as an investor, and the overall takeaway from these events.

If you have any questions or concerns after watching this video, please don’t hesitate to reach out to us. You matter to us, and we are here for you. Send us an email, or give us a call at (419) 425-2400. We would be happy to talk with you.

March 2018 Market Update Video

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In this month’s video, I will discuss some of the major headlines that influenced markets in February. I will also provide insight into what these developments could mean for you as an investor.

If you have any questions or concerns about your portfolio after watching this video, or would like a second opinion, please don’t hesitate to reach out to us. You can send us an email, or give us a call at (419) 425-2400. We would be happy to talk with you.

Volatile Markets Continue – Weekly Update for March 5, 2018

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Volatility continued last week as markets posted their 1st weekly loss in 3 weeks. Despite some recovery on Friday, the S&P 500 dropped 2.04%, the NASDAQ slipped 1.12%, and the Dow lost 3.05% for the week. Internationally, the MSCI EAFE fell 2.91%.

Last week’s ups and downs began with continued questions over whether the Fed will raise interest rates. By the week’s end, however, rumors of an international trade war dominated the attention of investors.

Fed Suggests Raising Interest Rates

New Fed Chair Jerome Powell testified on Tuesday that inflation and a strong economy may lead to interest rate hikes sooner than expected. Whether the Fed will impose a 4th hike this year caused investor uncertainty and led to mid-week market drops. Powell noted, however, that increased market volatility will not influence the Fed’s decisions regarding rate increases.

Trump Announces Tariffs on Imports

Investor attention shifted on Thursday as President Trump announced plans to impose a 25% tariff on steel and a 10% tariff on aluminum imports. While the move could protect American metal workers, some analysts worry it may also trigger a possible trade war.

Countries around the world reacted to the news, with some announcing their own plans for U.S. tariffs in response. Over the weekend, the President reacted by noting possible tariffs on imported autos, where the U.S. has a deficit. Some analysts worry this could further hurt an already negative trade gap in our Gross Domestic Product (GDP).

Signs of Strength

Despite the developments with tariffs and rising interest rates, we did receive encouraging economic reports: 

  • Strong Consumer Sentiment: Last month’s consumer sentiment report hit its 2nd highest recording in over 10 years. Upon the approved tax bill, companies gave nearly $30 billion in bonuses, boosting consumer incomes and attitudes.
  • Outstanding Jobless Claims: Last week’s reported jobless claims were the lowest in 49 years. A healthy demand for labor and few layoffs have helped keep unemployment numbers low.

What’s ahead?

Expect more market volatility going forward as investors follow the Fed’s interest rate plans to keep potential inflation in check. The President has also promised to announce specific details concerning the proposed new tariffs this week. If you have questions concerning how these developing economic policies may impact your financial life, we are always here to help.

ECONOMIC CALENDAR

Monday: ISM Non-mfg Index
Tuesday: Factory Orders
Wednesday: ADP Employment Report
Thursday: Jobless Claims

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