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 Vice President Charlie Toole discussed key trends he’s seeing in our recent quarterly webinar*: Investing Through Impeachments and Trade Wars.
Please enjoy the excerpt above and click here for the full webinar replay to hear more.
* * * * *
Charlie Toole: One of the trends that we’ve seen is better-than-expected earnings from companies. As Dan mentioned, 73% of the companies that have reported earnings have beat expectations. That’s the highest that we’ve seen in quite a long time. And as we started this, about a month ago, analysts were expecting about a 4% or 5% drop from earnings over last year with these better-than-expected earnings. That has come down now to a negative growth rate of about 3.3%. I saw that Apple reported earnings this afternoon and they had a better earnings report than expected. So that’s only going to help that largest stock out there.
Charlie Toole: But better-than-expected earnings is one of the trends that we’re seeing. We’ve talked about the U.S. economy holding up better than the rest of the world. Companies that are selling to U.S. consumers are doing better than companies that are not. As of last Friday*, companies that had more than 50% of their revenues coming from the United States only saw their earnings drop 0.8% from a year ago. If you flip that around to companies that have more than 50% of their revenues outside of the U.S., so they’re selling globally, those companies have reported profits dropping about 9% over a year ago.
Charlie Toole: Companies that are selling to the U.S. consumer, which as we’ve mentioned, for a long time, the U.S. consumer is still strong. The job market is still strong here. Employment growth is still strong, we got the ADP report today that was also strong. I think if you’re selling to the U.S. consumer, those companies are continuing to do well, while companies that are more geared towards other parts of the globe where the economies are not as strong, those companies are struggling. And that’s what we’re seeing out there.
Chief Investment OfficerJim Lowell: So, Charlie, is it true that we don’t just pay attention to analysts’ expectations, and earnings beats of consensus, but we dig a lot deeper, and we listen to the guidance that the CEOs, the CFOs of the company are delivering. Maybe 30 years ago, they could try to gin up their stock price by not exactly being 100% accurate with their assessments, but these days, there’s not a CEO alive that doesn’t know they’d be punished, and their stock price will be punished for misaligning expectations with facts. So in terms of the guidance that we’ve seen so far, I would imagine that for places like Caterpillar and others that are in the global economy, that the guidance is a little bit more challenged as opposed to, as you said, businesses that are catering to a still very strong U.S. consumer.
Charlie Toole: Absolutely. Company managements have definitely talked about how there’s really two different markets out there right now. There’s the consumer market that is still strong. We’ve seen a number of banks talk about how the consumer is strong, lending is still robust and credit quality is still high. We’re not seeing deterioration on loans. But then on the other hand, you mentioned Caterpillar, that’s a great example. The auto markets as well have also been struggling. And so the industrial market, whether it’s companies like Caterpillar that make big machines, rail companies that are transporting goods across the U.S. and the world, those companies are struggling a little bit more because the manufacturing sector is under such duress.
* Webinar recorded after the market closed on October 30, 2019.
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. We do not provide legal or tax advice, nor sell insurance products. 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. Always consult an attorney or tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.