What Positive or Negative Trends Do You See in the Markets?

We don’t have a crystal ball. Instead, Adviser Investments’ strategists monitor economic and market indicators to help anticipate future market activity. 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 our research-based approach to analyzing investments in our recent quarterly webinar*: Tariffs, Trade and Trump.

Please enjoy the excerpt below and click here for the full webinar replay to hear more.

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Jim Lowell: At Adviser Investments, we love to say that earnings drive the markets, so what positive and negative trends does our research team see?

Kate Austin: I would say we are fairly early into earnings season.* We’ve had about 30% of the S&P 500 report earnings. One of the trends that we’re really starting to see is a bifurcation of consumer-facing companies and manufacturing companies.

With a lot of consumer-facing companies, we’ve seen good revenue or sales growth, but we are finding some weakness in manufacturing companies as volumes come down and these companies are not able to increase prices enough to offset some of the higher costs that we’ve been seeing come in the system.

We may get the second quarter of negative earnings growth, giving us the first earnings recession since 2016. But we are still seeing positive revenue growth. I think this really points to a strong and confident consumer with top-line growth but cost-compressing profits, which are dragging down earnings. Although I will say, too, it’s not unusual for actuals to beat estimates.

By actuals, I mean what is actually reported—reported earnings versus estimated earnings.

Jim Lowell: Earnings estimates were obviously lowered to the point where you could jump over a match book and call it a win, but nevertheless, where we’re seeing some good earnings beats that’s somewhat heartening.

In terms of overall guidance, compared to where we began the year, have you been able to detect a shift in tone at all?

Kate Austin: Guidance—a company’s outlook—has become more cautious, and we have seen some of those earnings estimates numbers come down. At the beginning of the year, it looked like for calendar year 2019, earnings estimates were around 6% growth. Now we’re looking in the low single digits instead of the mid-single digits. We have seen what our clients are concerned about—trade wars, tariffs, Washington rhetoric—really start to compress some of those estimates.

Jim Lowell: It’s key to remember that low earnings growth is not no earnings growth.

Kate Austin: Exactly.

Jim Lowell: One of the things that we can still see inside of the U.S. market is that in the challenging environment, we’re still finding management teams that are able to rise to that challenge. That seems to be more difficult elsewhere.

Kate Austin: Agreed.

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Click here for a replay of Tariffs, Trade and Trump. Please contact us at (800) 492-6868 to learn more about comprehensive wealth management solutions.