Earnings Season Comes to a Close and the September Fed Meeting Approaches
With close to 90% of the companies in the S&P 500 index having reported thus far, the much anticipated Q2 2015 earnings season is coming to a close. Investors, looking just about anywhere for hints as to when the Federal Reserve will start raising interest rates, have kept earnings reports rightly in focus for indications as to the overall health of American corporations. With headwinds such as the strong U.S. dollar, a depressed energy sector, economic and stock market weakness in China, and continued uncertainty in Europe, the market had been expecting and pricing in an overall decline in earnings growth of -4.5% for Q2 as recently as June 30th. However, according to FactSet’s latest Earnings Insight Report (published August 6), S&P 500 index components are on pace for a decline in earnings of only 1%, and when the energy sector is removed (which accounts for approximately 7% of the index) earnings growth registers a positive 5.7%.
The global economic conditions that have kept a lid on corporate earnings are also likely to play a factor in the timing of the Fed’s first rate hike to the extent that they change the Federal Open Market Committee (FOMC)’s view on longer term inflation expectations and growth in U.S. Gross Domestic Product (GDP). In the FOMC’s latest statement, released following their July 29 meeting, the decline in the price of oil and the spillover effects on inflation and inflation expectations are seen as transitory (or short term in nature) and not likely to alter their medium term forecasts. Also taken into consideration are “financial and international developments” which, while vague in their description, almost certainly include the potential slowdown in the Chinese economy and strength of the U.S. dollar relative to most major currencies. Despite these issues asset manager Bill Gross, in addition to other market professionals including us at Hennion & Walsh, believes that the first rate 0.25% hike will occur following the September 17 meeting.
The flow of data, divergences in developed and emerging market economic performance, and volatility in currency markets is unlike that of any other time in recent history. Investors that simply rely on historical averages when making investment decisions in this environment may be making costly mistakes that lead to an inefficient allocation of investment dollars. Now, perhaps more than ever, investors need to be reviewing their asset allocation and developing strategies so they are able to adjust when appropriate as new information is released. To discuss some of the strategies that we at Hennion and Walsh are putting in place for clients, or to have your own current asset allocation reviewed, please speak with your Hennion and Walsh financial advisor or a member of the Hennion and Walsh Asset Management Team.
Sources: Equity Market, Fixed Income and REIT returns from JP Morgan as of 8/14/15. Rates and Economic Calendar Data from Bloomberg as of 8/17/15.
Important Information and Disclaimers
Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion and Walsh cannot guarantee the accuracy of said information and cannot be held liable.
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