Highlights

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.

Global Markets

Global Market Returns - 26 November 2018

Source: Bloomberg

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).

From FactSet:

  • 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)

Commodities 2017 - 2018

Source: Bloomberg

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.

US crude oil stocks December 2016 - December 2018

Source: U.S. Energy Information Administration

And as for demand – it’s not exactly going backwards…

Daily demand for crude oil 2006 - 2019


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

Week Shares Forecast November 26 - 30

Source: Briefing.com


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.

Earnings and S&P 500 chart November 2018

Currently a clear disconnect. Would look for a rebound in S&P 500 at some point.

S&P and EPS Chart November 2018

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