We ask you, readers, to name the single most important factor that has supported stock prices through all the turmoil over the last year. We bet more than half of you uttered “earnings” to yourself. Earnings have grown strongly in the last year, something that helped keep prices stable despite big geopolitical worries. However, there pillar of the market may now be crumbling as analysts have just turned the earnings outlook negative for the first time in three years. Analysts now expect first quarter earnings to decline by almost 1% from last year. By contrast, at the end of December, expectations were for a 3.3% gain. Most expect the weakness to come from margins, not top line growth.
FINSUM: Continued strong earnings were supposed to be one of the positives this year. If earnings sputter out, what is there to hold up the market in the face of so much uncertainty?
The first quarter was a wild and turbulent period for investors. It featured head spinning losses to start, and a rip-roaring recovery. This piece digs into the details and shows all the top winners and losers. Without further ado, here are the top 5 performing assets from the first quarter and their gains: lean hogs (35.2%), gold (16.5%), Dow Jones Utility Average (15.7%), Bovespa (Brazil) (15.5%), and S&P 500 Telecom (15.1%). Now onto to the biggest losers: rough rice (-18.2%), natural gas (-16.2%), FTSE MIB (Italy) (-15.4%), Shanghai Composite (-15.1%), Nikkei Stock Average (Japan) (-12.0%).
FINSUM: This was an absolutely great chart—full of useful detail and easy to digest. Very interesting to see the divergence in different asset classes this quarter. The S&P 500 seems fortunate to be where it is right now.
Source: Wall Street Journal
US first quarter growth data is set to be updated today, and analysts are expecting poor news. The official data currently sits at a 0.2% expansion, but many think the updated figures will show that the US actually contracted in the first quarter. Analysts are forecasting a 1% decline for the economy. If the contraction proves accurate, it will be the third time since 2009 that the US economy has contracted during a quarter. New economic data which has emerged since the initial GDP release is what has led many to believe the US contracted. Most economists do not consider a bout of contraction a ‘recession’ until it has happened in two consecutive quarters.
FINSUM: While the market is probably already pricing this in, beware, as there could be some downside risk if the number comes in below the already weak expectations. Will the second quarter show a good pop in growth like past years?
Source: Wall Street Journal
Hedge funds have taken an enormous amount of heat in the press over the last couple of years, but this Financial Times story tells of how the sector just finished a strong first quarter. Based at least in part on bullish Dollar bets, hedge funds as a whole had their best quarter versus the S&P since 2011. Large, well-known funds, like Bridgewater, Moore Capital, and Brevan Howard, all posted strong returns. Ray Dalio’s Bridgewater saw its main fund rise 14% in Q1, whole Moore Capital rose 4%, and Brevan Howard 3%. Caxton, another well-known fund, gained 7%, and Paul Tudor Jones’ fund rose nearly 5%. One hedge fund founder explained that divergent monetary policy in different parts of the globe is better for macro trading funds than convergent monetary policy, which had reigned until recently.
FINSUM: Some funds seem to have finally demonstrated why hedge funds existed in the first place, after years of declines. However, hard to call this a renaissance as it is just one quarter’s performance.