Market Commentaries

  • Earnings Scorecard – How is the Third Quarter Shaping Up?


    Market Overview


    Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 11/08/19. Rates and Economic Calendar Data from Bloomberg as of 11/08/19. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.

    Happening Now                   

    Global equity markets finished higher last week. In the U.S., the S&P 500 Index hit all-time highs finishing the week at a level of 3093, representing a gain of 0.93%. The increase also marks the fifth consecutive weekly advance for the index, the longest streak since February of this year. The Russell Midcap Index returned 0.40% while the Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, gained 0.63% for the week. On the international equities front, developed and emerging markets also finished positive returning 0.54% and 1.50%, respectively. In fixed income, 10 year U.S. Treasury prices continued to give way to overall economic optimism as their yield increased to 1.94%.

    Stocks were lifted early last week by an October jobs report that surprised to the upside as well as news of continued progress between the U.S. and China, in particular, an alleged agreement that some existing tariffs would be rescinded. The sentiment would be tempered a bit on Monday of this week as President Trump commented that negotiations are moving along “very nicely,” but that an agreement has not been reached and tariffs would not be eliminated. Regardless, it seems that some form of progress is being made but that new headlines in this regard are likely to contribute to continued volatility moving forward.

    We’re encouraged overall by the direction and clarity that has been provided recently to combat some previously perceived market headwinds, such as trade/tariffs, a no-deal Brexit, and certain recession risks and indicators (ex. an inverted yield curve). These areas of clarity, combined with a dovish-leaning Federal Reserve and a strong U.S. consumer, should provide more upside potential, though likely limited, for stocks as we close out 2019.

    Finally, let’s review corporate earnings as we move into the later innings of earnings season. Third quarter earnings have provided validation of our overall “Slowing but Growing” theme and the relative strength and confidence of the U.S. consumer. According to Fact Set, as of November 8, 2019, with 89% of the companies in the S&P 500 having reported results, 75% reported positive earnings surprises and 60% reported positive revenue surprises. Earnings are estimated to decline in the third quarter versus the same period last year. However, companies have thus far reported earnings that are 3.8% above expectations. In terms of revenues, analysts estimate that revenues will be higher in the third quarter versus the same period last year, helped by healthy levels of consumer spending, but hurt by the strength of the U.S. Dollar. This revenue momentum should help carry the economy through the end of the fourth quarter of 2019 and into the first quarter of 2020. We anticipate that revenues, and earnings, will be relatively strong in the fourth quarter of 2019, culminating with a record holiday shopping season – particularly online holiday shopping.

    As always, we encourage investors to stay disciplined and work with experienced financial professionals to help manage their portfolios through various market cycles within a well-diversified framework that is consistent with their objectives, time-frame and tolerance for risk.

    Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging markets.

    There are special risks associated with an investment in real estate, including credit risk, interest rate fluctuations and the impact of varied economic conditions. Distributions from REIT investments are taxed at the owner’s tax bracket.

    The prices of small company and mid cap stocks are generally more volatile than large company stocks. They often involve higher risks because smaller companies may lack the management expertise, financial resources, product diversification and competitive strengths to endure adverse economic conditions.

    Investing in commodities is not suitable for all investors. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity.

    Products that invest in commodities may employ more complex strategies which may expose investors to additional risks.

    Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original cost upon redemption or maturity. Bond Prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.


    MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.

    MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.

    Russell 3000: The Russell 3000 measures the performance of the 3000 largest US companies based on total market capitalization and represents about 98% of the investible US Equity market.

    ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.

    ML Muni Master [Merill Lynch US Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.

    Investors cannot directly purchase any index.

    LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.

    The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.

    The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.

    DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITs that primarily own and operate income-producing real estate.

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