Hixon Zuercher Capital Management

Fee-only Registered Investment Advisor in Findlay, Ohio 45840

Mixed Results as Turkey Stumbles – Weekly Update for August 13, 2018

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Stocks ended the week in mixed territory as trouble with Turkey’s currency affected U.S. equity performance on Friday, August 10. For the week, the S&P 500 lost 0.25%, the Dow declined 0.59%, and the NASDAQ increased 0.35%. International stocks in the MSCI EAFE stumbled, giving back 1.57%.

Although last week brought relatively few economic updates, we did learn that the labor market continues to improve and consumer prices are on the rise. While this news may have affected market performance, the challenges facing Turkey’s economy had an outsize impact on global stocks.

What happened to the Turkish lira?

The Turkish lira dropped 14% to 6.46 per dollar, the weakest on record with the largest drop in more than 17 years. The lira ended the week at a record low against the U.S. dollar. Tension between the U.S. and Turkey played a part in the decline as President Trump tweeted plans to double tariffs on Turkish steel and aluminum imports. This potential tariff hike followed a stalled conversation between the two countries concerning an imprisoned U.S. pastor who Turkey believes supported a 2016 attempted coup.

How did investors react?

The resulting drop in the lira’s value concerned investors and led to losses in markets worldwide. Friday, the S&P 500 marked its largest daily decline since June after getting close to a new record high.

Why do investors care?

The lira’s drop is another sign that emerging markets are experiencing challenges in their economies. Some investors worry that Turkey’s economic crisis could spread to other countries or affect interest in other emerging markets.

Should you be concerned?

Probably not for now. U.S. companies don’t have a tremendous amount of exposure to Turkish markets.

We know that global dynamics can be complex and understanding their specific effects on your financial life may seem challenging. If you have any questions, contact us any time.

ECONOMIC CALENDAR

Tuesday: Import and Export Prices
Wednesday: Retail Sales, Industrial Production, Housing Market Index
Thursday: Housing Starts, Jobless Claims
Friday: Consumer Sentiment

Stocks Up as Data Comes In – Weekly Update for August 6, 2018

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Domestic markets ended last week in positive territory, as the S&P gained 0.76%, the Dow was up 0.05%, and the NASDAQ increased 0.96%. This performance marked the 5th week in a row that the S&P 500 and Dow posted gains. Meanwhile, international stocks in the MSCI EAFE stumbled, losing 1.47% for the week.

Once again, trade and corporate earnings were in the news last week. We learned that the U.S. is considering increasing tariffs on $200 billion of Chinese imports. In response, China announced their own tariffs ranging from 5%-25% on $60 billion of U.S. products.

Corporate earnings season also continued, and so far, more than 78% of S&P 500 companies have beaten estimates. If the trend holds, the 2nd quarter will likely average more than 20% growth in earnings per share. Companies have also detailed positive perspectives for the rest of 2018, showing that this strong corporate performance should continue.

Of course, last week’s trade and earnings weren’t the only topics on investors’ minds. We also received a number of data reports that shaped our understanding of the economy’s health.

Key Findings from Last Week

  • Consumers are earning and spending more. The latest data for personal consumption and personal income revealed both measures increased by 0.4% in June. In addition, the report included revised data from 2013-2017, which indicated that people earned $1.05 trillion more during that time period than initially thought.
  • Tariff concerns are affecting manufacturing. The manufacturing sector continues to expand at a faster rate than in 2017, but the pace of growth slowed more than anticipated in July. Respondents to the ISM Manufacturing Index survey shared concerns about tariffs, steel and aluminum disruptions, and transportation challenges.
  • The Federal Reserve is on track for a September rate hike. The Fed didn’t raise rates this month, but projections show a 93.6% chance that it will do so in September. The latest jobs report detailed steady wage increases, which helped ease Fed concerns about inflation.

This week is relatively light on economic data, but we will continue to analyze last week’s reports and the remaining corporate earnings releases. If you have any questions about where the economy is today or what may lie ahead, we’re here to talk.

ECONOMIC CALENDAR

Tuesday: JOLTS
Thursday: Jobless Claims
Friday: Consumer Price Index 

Special Quarterly Update: 4 Key Details to Know about Q2

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Last week, trade tensions with China lessened somewhat, while the 2nd quarter corporate earnings season started with mixed results. Against this backdrop, domestic stocks experienced sizable growth. By market’s close on Friday, July 13, the S&P 500 was above 2,800 for the first time since February 1. Meanwhile, the Dow was above 25,000, and the NASDAQ had hit a new record. For the week, the S&P 500 gained 1.50%, the Dow added 2.30%, and the NASDAQ was up 1.79%. International stocks in the MSCI EAFE increased as well by 0.16%.

We are now two weeks into July, which means the 1st half of 2018 is behind us. As we analyze what may be ahead in the markets, we’ll also strive to understand what has happened so far this year.

2nd Quarter Update: Key Details to Know

  • Domestic indexes had mixed results.
    At the end of the 1st quarter, the NASDAQ was up by 2.3%, while both the S&P 500 and Dow were in negative territory for the year. Fast-forward to the 2nd quarter’s end, and the Dow was still down with a 1.8% loss between January and June. During the same time period, the S&P 500 gained 1.7% and the NASDAQ added 8.8%.
  • Trade tension persisted.
    Global trade was a major topic throughout the 2nd quarter. In April, the U.S. proposed $50 billion of tariffs on Chinese products—and China announced its own tariffs in response. The trade tension also extended to Canada, the EU, and Mexico as the U.S. added tariffs to steel and aluminum imports from these countries. While this situation attracted significant news coverage, investors were able to put much of their focus on economic details—such as corporate earnings—instead.
  •  Interest rates rose.
    In June, the Federal Reserve increased interest rates by 0.25%, which marks the 2nd rate hike so far this year. The Fed gave an optimistic view of the economy and said that two more increases could be ahead in 2018.
  • The labor market stayed strong.
    In May, unemployment hit its lowest level since 2000. June’s labor report showed unemployment increasing to 4% but for a positive reason: more people reentering the job market. The latest report also showed better-than-expected job growth. Wage increases missed expectations and still have room to expand more quickly. At the same time, their steady pace should help keep inflation in check and interest rate increases continue gradually.

Looking Ahead

More 2nd-quarter data is still to come. Gross Domestic Product may have increased by as much as 5% annually between April and June. That growth rate would be over twice what we experienced in the 1st quarter. We are also at the very beginning of 2nd-quarter corporate earnings season, and analysts predict earnings growth of 20%.

Moving into the 3rd quarter, trade will likely continue to be a hot topic, but it’s far from being the only detail worth following. As we gain more information about what happened in the 2nd quarter, we will combine those perspectives with the performance we’re experiencing now. In the meantime, if you have any questions, we’re here to talk.

ECONOMIC CALENDAR

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

The Power of Corporate Earnings – Weekly Update for June 25, 2018

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Stocks stumbled across the globe last week as trade tensions continued to escalate. Despite rebounding somewhat on Friday, the S&P 500 experienced its first weekly loss in a month, and the Dow posted its worst week since March. The S&P 500 dropped 0.89%, the Dow lost 2.03%, and the NASDAQ fell 0.69%. International stocks in the MSCI EAFE gave back 0.98%.

While trade headlines may affect market performance, a closer look at the data shows other, more powerful drivers affecting equity prices. In particular, many investors continue to focus on corporate earnings estimates.

Analyzing Corporate Earnings

Strong corporate earnings have helped maintain a sense of market balance in 2018. As the media focuses on political stories, corporate earnings estimates continue to rise—and have a greater market affect than many investors may recognize.

  • How Corporate Earnings Estimates Work
    Many financial services companies hire analysts to predict how much a company’s stock will earn per share. The average of all the experts’ predictions creates a consensus earnings estimate. This calculation gives a rough view of the company’s cash flow—which helps investors value a stock. Generally, when a company beats its earnings estimate, the stock price goes up. If it misses or matches the prediction, the stock may suffer.
  • Where We Are Now
    Tax cuts and increasing demand have helped earnings estimates grow this year. As the estimates have risen, companies with the largest increases are significantly outperforming those with the worst. The latest numbers show earnings per share growing in 2019 and 2020—and 2018’s projections are higher than they were at the end of the 1st quarter. This data has helped keep markets from overreacting to the geopolitical buzz in the background.

Looking Forward

While we expect to hear more on a potential trade war, we will continue to focus on key market principals. This week, we will receive several reports, including consumer confidence and durable goods orders. Rather than significantly affecting stocks, these releases may simply underscore what corporate earnings and other data continue to demonstrate: Right now, the economy is healthy.

Next month, earnings season will begin, and analysts expect S&P 500 companies to show 20% profit growth in the 2nd quarter.

Looking ahead, we will continue to analyze how rising tariffs could affect the domestic and global markets. But, as always, economic fundamentals will take the lion’s share of our attention.

If you have questions about earnings, trade, or your future, contact us any time.

ECONOMIC CALENDAR:

Tuesday: Consumer Confidence
Wednesday: Durable Goods Orders
Thursday: GDP, Jobless Claims
Friday: Personal Income and Outlays, Consumer Sentiment

Trade and Interest Rates – Weekly Update for June 18, 2018

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Last week stocks showed mixed results as political headlines continued to dominate the news. The Dow lost 0.89% and the S&P 500 was almost flat with a 0.02% gain. The NASDAQ, on the other hand, reached a record high on Thursday and ended the week up 1.32%. Both the S&P 500 and NASDAQ experienced their 4th week of gains in a row. International stocks in the MSCI EAFE lost ground, posting a 0.52% decline.

Two Key Perspectives From Last Week

  1. Trade tension continued.
    Spats with U.S. allies—including Canada—and ongoing threats of a trade war with China captured investors’ attention last week. On Friday, equities briefly stumbled when the U.S. pledged new tariffs on Chinese goods, and China responded by promising the same level of tariffs on the U.S. A true trade war could slow global economic growth, but the current tariff tension may be little more than negotiation tactics.
  1. Interest rates increased.
    On Wednesday, June 13, the Federal Reserve raised its benchmark interest rates for the 2nd time this year. Fed Chairman Powell said, “…the economy is doing very well. Most people who want to find jobs are finding them and unemployment and inflation are low.” The Fed believes economic growth will continue at a faster rate than they last predicted. They also project that unemployment will fall to 3.6% by the end of 2018. The Fed may raise rates twice more this year. 

The Takeaway

Getting caught up in the news cycles and international headlines is easy, but they often provide little perspective on what may actually lie ahead for investors. Instead of trying to predict market performance, we encourage you to focus on the data.

This week, we’ll gain new perspectives on the housing market, as well as employment. The insight will continue to help us build a picture of where the economy is today—and how to help our clients make the most of their opportunities. 

ECONOMIC CALENDAR

Monday: Housing Market Index
Tuesday: Housing Starts
Wednesday: Existing Home Sales
Thursday: Jobless Claims

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