Displaying items by tag: S&P 500

(Washington)

For the most part, President Trump has been seen as quite positive for markets. The big rally in his first year cemented that idea, and for most of this year, stocks were in good shape. However, here is an interesting fact—equity valuations are now lower than when he took office. As the media puts it, “the Trump Bump is turning into the Trump discount”.

FINSUM: Two thoughts occur here. The first is that a big reason why valuations have fallen is because earnings are so good, and a lot of that has to do with the Republican-led tax package, so it is not fair to turn that into a negative. Secondly, most of the market trouble stems from the trade war, so it is more an isolated case of policy than a broad effect. In fact, what could be better than good share appreciation without a rise in valuations? It is exactly what you are looking for as an investor—something that earns well but doesn’t look increasingly overpriced.

(New York)

Yesterday was a full-on panic in markets. Shares plunged across the board from a broad mix of worries about rates, earnings, the economy, and trade war. The Nasdaq was hit hardest, falling 4.4% into correction territory. Losses in the Dow and S&P 500 were enough to eliminate all gains for the year. Earnings have continued to be strong, but it has not helped support stocks much, if at all. The S&P 500 is now 9.4% off its 52-week high.

FINSUM: Our own view on stocks is that this will be a temporary hiccup and equities will steady themselves soon. Given that earnings growth is strong and the economy is still very healthy, it is hard to imagine a bear market starting.

(New York)

The S&P 500 is off about 6% this month, almost enough to eliminate its gain for the year. At the same time, earnings have grown strongly. Put together, a good question emerges: when do stocks again become cheap? In the last several selloffs, stocks have found support when valuations fell to 15x earnings, so it seems a good target. Taking account of various earnings forecasts, it appears stocks would need to fall a further 14% from here to make it to that level.

FINSUM: That would put the S&P 500 near a bear market just to bring the p/e ratio back down to 15x. Bleak.

(New York)

The market is so turned on its head right now that yesterday’s 126 point drop in the Dow seems like good news. The market has been so bad lately, that the fact that yesterday’s potential 550 point loss shrunk to only 126 points seemed like a positive development. Investors are worried about the idea of peak earnings, but analysts insist they are overreacting, with many reiterating that earnings will continue to be strong and the economy will stay in expansionary mode. Kate Warne, a strategist at Edward Jones, says that investors will realize this is not the end of the economic cycle just yet. “It’s not peak earnings, it’s peak earnings growth”, says Warne, continuing “The pace is still positive, just the growth rate isn’t as high as it was”.

FINSUM: We tend to agree with the strategists. If earnings still continue to grow in the next couple of quarters and the economy stays strong, it is hard to imagine that stocks will keep falling.

(New York)

There are a lot of dark clouds hanging over the market right now—trade war, rates, politics, Italy etc. However, one of the strong bright spots has been earnings. Company performance has been very strong, which has been a real boost against the headwinds. That is why this article scared us so much. Barron’s has run a piece analyzing earnings which shows that all is not what it seems. While earnings have been strong, with about three-quarters of companies beating estimates, what has been lost is that company’s are actually struggling with revenue, with only 58% beating estimates. That is the lowest percentage in six quarters, and shows that companies are having trouble hitting their sales goals.

FINSUM: Markets have reacted to this data, but not in a major way. We are quite worried about revenue struggles as it might indicate that consumers are tightening up and a recession could be on the way.