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.

Hixon Zuercher June 2016 Monthly Video Update

What does Cavalier mean? Check out our monthly update to see how Tony’s favorite basketball team can relate to the Fed’s interest rate discussion.

Is the Bull Market Too Old? – Weekly Update for May 2, 2016

Image courtesy of FreeDigitalPhotos.net/hywards

Image courtesy of FreeDigitalPhotos.net/hywards

As of Friday, the S&P 500 is on the second-longest bull market run in history, surpassing the 1949-1956 bull market that lasted 2,607 days. The longest bull market in history ran between 1987 and 2000, lasting nearly 4,500 days.

After months of volatility and challenges on the horizon, can the bulls keep running?

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In the pro-bull column, we have a few major points to consider:

Bull markets don’t just die of old age. History shows us that bull markets ended because of a variety of shocks like oil price spikes, recessions, bursting asset bubbles, geopolitical issues, and extreme leveraging. While the past doesn’t predict the future, we should evaluate threats to market performance instead of worrying about birthdays.

Economic indicators support growth. Recessions have accompanied or presaged many previous bear markets. Currently, economic indicators like a growing job market, low gas prices, and a healthy housing market point to sustainable—though moderate—economic growth. Even when recession risks are higher this year, most economists don’t see an economic downturn in the short-term future.

We have experienced healthy pullbacks. One of the markers of a bull market top is elevated investor optimism and unsustainably high stock valuations. Since the last S&P 500 market high in May of 2015, markets have retrenched several times as investors have taken stock of global risks to growth. We haven’t seen the irrational exuberance that often foreshadows a bear market turn.

In the pro-bear column, we also have some points to weigh in our thinking:

Threats to economic growth from China and Europe may prove too much for markets. We don’t know that we have seen the worst out of China, and a hard landing of the world’s second-largest economy would send ripples throughout the global economy that could threaten markets. Europe is grappling with political, economic, and security issues that could threaten the EU.

The Federal Reserve may bungle monetary policy. The Fed is performing a very delicate dance to bring interest rates closer to historic levels. Raise rates too fast and the economy could stumble; raise them too slowly and the Fed could leave itself unable to fight off another economic slowdown. A monetary policy misstep could trigger a market downturn.

Corporate profits may continue to fall. U.S. companies are struggling to find growth amid challenging global conditions; earnings declined year-over-year for the fifth quarter in a row last quarter, and continued weakness could cause investors to become bearish about U.S. stocks.

Our view

The simple truth is that no one can predict market tops or bottoms; plenty of people say they can, but it’s all a matter of educated (or uneducated) guesswork. Instead of trying to call markets, what we do is take a look at overall domestic and international fundamentals and create portfolio strategies that align with our clients’ overall goals. We can assume that the current bull market will come to an end someday; to reach the #1 spot it would have to continue through 2021, and that’s a pretty big stretch. Rather than worrying about when the end might come, we’ll adjust portfolio strategies as needed and prudently position our clients for risk.

If you have any questions about market strategies for volatile times, please give our office a call. We’d be happy to speak to you.

ECONOMIC CALENDAR:

Monday: PMI Manufacturing Index, ISM Mfg. Index, Construction Spending

Tuesday: Motor Vehicle Sales

Wednesday: ADP Employment Report, International Trade, Productivity and Costs, Factory Orders, ISM Non-Mfg. Index, EIA Petroleum Status Report

Thursday: Jobless Claims

Friday: Employment Situation

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HEADLINES:

Durable goods orders rise. March orders for long-lasting factory goods like airplanes, appliances, and electronics rebounded but grew less than expected, indicating the manufacturing slump isn’t over.

Economy grew 0.5% in first quarter. Gross Domestic Product (GDP), the primary measure of overall economic growth, grew just 0.5% on an inflation-adjusted basis, showing that the economy slowed after the fourth quarter of 2015. GDP growth estimates will be adjusted as new data arrives.

Consumer sentiment falls in April. One measure of consumer sentiment shows that Americans were less optimistic about their financial prospects last month. Falling sentiment could mean less consumer spending this quarter.

Federal Reserve holds interest rates steady. The Fed’s Open Market Committee voted to keep rates where they are out of concern about slowing economic growth. Though rates could increase this summer, some think that the Fed will wait until December to hike.

Hixon Zuercher January 2016 Monthly Video Update

Hixon Zuercher December 2015 Monthly Video Update

Hixon Zuercher September 2015 Monthly Market Update

Hixon Zuercher August 2015 Monthly Market Update

Stocks End Week Up Weekly Update – August 3, 2015

Courtesy of FreeDigitalPhotos.net/JSCreationzs

Courtesy of FreeDigitalPhotos.net/JSCreationzs

Stocks snapped their losing streak and regained steam last week despite some soft data, posting weekly and monthly gains. For the week, the S&P 500 gained 1.16%, the Dow rose 0.69%, and the NASDAQ grew 0.78%.

July was a volatile month, with a tug-of-war between overseas and domestic data and concerns about a Greek exit from the Eurozone. Despite all the downward pressure, stocks managed to record a respectable gain for the week.

Earnings season continued, and we have results from over 350 S&P 500 companies. So far, overall earnings were down 2.5% year-over-year on 4.4% lower revenues. The Energy sector is dragging on overall earnings growth because of low oil prices. Taking Energy companies out, analysts expect overall S&P 500 earnings to be up 5.4% year-over-year on 1.4% higher revenues.

Now that the overall earnings picture is firming up, analysts are turning their attention to third-quarter expectations. Unfortunately, it looks like U.S. companies are even more cautious about the rest of the year and earnings estimates for Q3 and Q4 are coming down across the board. The chart below shows that overall earnings growth is expected to be negative in the third and fourth quarters before picking up early next year.

83-1Will these estimates hold? It’s hard to say. Many corporate managers prefer to “under-promise and over-deliver” on estimates, artificially lowering them so as to be able to beat their own expectations. We’ll know more as the quarter progresses.

The Federal Reserve met again in July, and though no interest rate changes were announced, the central bank reiterated its intentions to raise rates this year – possibly as soon as September. Are higher rates already baked into stock and bond prices? We don’t know for certain, but the Fed has been telegraphing its rates play for months now, so we hope that markets won’t overreact when rates finally start to go up. Though we don’t know how quickly the Fed will start hiking up rates, we expect the process to be slow and gradual, giving the economy time to adapt.

We also got our first look at second quarter Gross Domestic Product, which showed that the economy grew at 2.3% in the second quarter. While economists had predicted higher growth, it’s still a vast improvement on the 0.6% growth the economy saw in the wintery first quarter.

The week ahead is packed with economic data, including motor vehicle sales, factory orders, and the July employment situation report. Analysts will be highlighting Friday’s July jobs report to see whether it supports or detracts from the Fed’s case for raising rates. If hiring remains strong and wage growth improves, the Fed may still be on target for a September rate hike. If wage growth is soft, it could push the timeline out.

ECONOMIC CALENDAR:

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

Tuesday: Factory Orders

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

Thursday: Jobless Claims

Friday: Employment Situation

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HEADLINES:

Consumer sentiment drops in July. Two measures of how American consumers feel about their economic prospects dropped in July, partly because of concerns about economic growth as well as worries about Greece and China.

Big cities drive rental prices high. U.S. home rental prices rose much faster than incomes in June. Unsurprisingly, major cities like San Jose, San Francisco, and Denver experienced double-digit year-over-year increases as demand pushed rental prices higher.

Weekly jobless claims rise slightly. Though weekly claims for new unemployment benefits edged higher last week, the four-week average dipped lower, indicating that the labor market continues to improve.

Oil prices drop as producers keep pumping. Crude oil experienced its biggest monthly drop since 2008 on signs that Middle East producers were continuing to pump at record levels despite concerns about a supply glut.

Hixon Zuercher July 2015 Monthly Market Update

Hixon Zuercher June 2015 Monthly Market Update