Earnings Trends’ Impact on Stock Prices February 14, 2020 Investing Print https://www.adviserinvestments.com/wp-content/uploads/qw0120-earnings.mp3 We focus less on Wall Street analysts’ earnings estimates and more on what corporate leaders actually say about their current business and future expectations. Chief Investment Officer Jim Lowell and EquityThe amount of money that would be returned to shareholders if a company’s assets were sold off and all its debt repaid. Research Analyst Kate Austin discussed where earnings are headed and the correlation between earnings and stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. prices in our recent quarterly webinar*: 2020 Conflicts—Impeachment, Tariffs & Global Dysfunction. Please enjoy the excerpt below and click here for the full webinar replay to hear more. * * * * * Kate Austin: The data from the fourth quarter of 2019 is just starting to be reported, and I’ll touch on that a little bit later. But last year, corporate earnings didn’t grow. In fact, they contracted slightly. And including returns in the fourth quarter of 2019, we had over 30% returns [for the stock market]. Similarly, in 2018 we had double-digit growth rates of corporate earnings, double digits. And we had a negative S&P 500 return for the 2018 year. Kate Austin: So while the old adage of “stock prices follow their earnings” is usually true, it’s not always true, as we saw these past two years. So yes, it’s entirely possible, and something that we recently experienced. For the fourth quarter of 2019, though, so far (and remember not even 15% of the S&P 500 companies have reported earnings, so it’s still very early) revenues look like they have increased by about 2% and earnings have dropped by about 2%. So if you’re thinking to yourself, “Kate, this doesn’t make any sense. How is this possible? What’s really changed?” If we expect revenues to go up, we expect earnings would also go up. But many companies have actually cited increased costs in labor and higher input costs that they’re not able to pass onto the consumer. Kate Austin: So while the consumer is strong, higher costs are actually pressuring earnings negatively. Many companies are implementing cost cuts and other strategies to bring themselves back to profitability or growth rates, really. Earnings growth rates. But we’ll really need to look at the rest of 2019 and 2020 to see if they are successful. Jim Lowell: Okay. One of the things that you do of course, is similar to the bond point. You’re not looking at corporate earnings on average to make your investment decisions. Kate Austin: No, no. Jim Lowell: You’re looking for companies who are specifically showing earnings-growth strength? Kate Austin: Exactly. We live in the weeds. We love to look at accounting, financial statements and all that stuff. I do love to say that I love to live in the weeds, so we don’t make a blanket statements by any means. We’re digging deep into the fundamentals. Click here for a replay of 2020 Conflicts—Impeachment, Tariffs & Global Dysfunction. Please contact us at (800) 492-6868 to learn more about comprehensive wealth management solutions. *Webinar recorded after the market closed on January 23, 2020. Disclaimer: This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Our statements and opinions are subject to change at any time, without notice and should be considered only as part of a diversified portfolio. Mutual funds and exchange-traded funds mentioned herein are not necessarily held in client portfolios. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed. You may request a free copy of the firm’s Form ADV Part 2A, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged. Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs. © 2020 Adviser Investments, LLC. All Rights Reserved.