No joy in global markets last week in what was essentially a three-day week in the U.S. due to Thanksgiving. U.S. markets are ignoring (for now) stellar 3Q earnings, a strong economy and historically low unemployment. A weaker Australian dollar lessened the pain for domestic investors.
Earnings Wrap (Third Quarter 2018)
U.S. reporting season is just about complete. Pretty decent quarter for earning overall. Markets seem to be looking elsewhere however (trade, tariffs, the Fed etc).
- Earnings Scorecard: For Q3 2018 (with 96% of the companies in the S&P 500 reporting actual results for the quarter), 78% of S&P 500 companies have reported a positive EPS surprise and 61% have reported a positive sales surprise.
- Earnings Growth: For Q3 2018, the blended earnings growth rate Y/Y for the S&P 500 is 25.9%. If 25.9% is the actual growth rate for the quarter, it will mark the highest earnings growth since Q3 2010.
Contrast those results with the latest European earnings (as of 20 November 2018):
- Third quarter earnings are expected to increase 14.6% from Q3 2017.
- Third quarter revenue is expected to increase 5.6% from Q3 2017. (S&P 500 revenues grew 9.3 % Y/Y)
- 249 companies in the STOXX 600 have reported earnings to date for Q3 2018. Of these, 48.2% reported results exceeding analyst estimates. In a typical quarter 50% beat analyst EPS estimates.
- 289 companies in the STOXX 600 have reported revenue to date for Q3 2018. Of these, 54.3% reported revenue exceeding analyst estimates. In a typical quarter 54% beat analyst revenue estimates.
Rates and Commodities
10-Year Treasury yield: 3.03% (down 3bp for the week)
AUD: US$72.37 (-1.3% for the week)
Oil: Prices resumed falling Thursday and Friday, with both Brent crude and West Texas Intermediate futures hovering near one-year lows.
The Thanksgiving holiday week saw WTI crude drop 11% and Brent crude fall 12%. WTI closed at US$50.42 on Friday. (It hit a 52-week high of US$76.10 on 3 October)
All eyes now are on the Organization of the Petroleum Exporting Countries and its allies, who are due to meet 6 December to discuss a potential production cut.
Falling oil prices are not a reliable economic signal. Worldwide demand remains strong. What we have is a supply imbalance thanks in part to U.S. shale producers.
And as for demand – it’s not exactly going backwards…
The Week Ahead
G20: President Donald Trump and China’s President Xi Jinping are expected to meet at the G-20 conference in Argentina this week. Investors would like a deal.
U.S. Economic Calendar
Chart of The Day
Earnings and S&P 500 A Tight Fit!: The S&P 500 typically tracks earnings and recessions are the problem, but one does not seem imminent.
Currently a clear disconnect. Would look for a rebound in S&P 500 at some point.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual and does not constitute financial advice. Consider the appropriateness of the information in regards to your circumstances.
This content may contain opinions, conclusions, estimates and other forward-looking statements which are subject to various risks and uncertainties. Actual events or results may differ materially, positively or negatively, from those reflected or contemplated in such forward-looking statements.
Past performance is not a reliable indicator of future performance.