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Market Perspectives - May 2019

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Market Perspectives - May 2019

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Market Perspectives - May 2019

  1. 1. Market Perspectives - May 2019 Experience Insight Impact Overview: With market participants focused on the back and forth of U.S./China trade discussions, we revisit U.S. corporate earnings. The first quarter (Q1 2019) earnings season is largely complete. It was a pivotal quarter given the market had rebounded dramatically from the December lows. U.S. corporations did not disappoint with 76% of companies posting better than expected results. However, future performance is contingent on global trade and the outcomes of U.S./China negotiations. This month, we analyze recent results and how to view the impact of trade on the quarter. 1
  2. 2. Corporate Earnings Rebound Continues Experience Insight Impact Year-over-year, Q1 S&P 500 sales grew 4.77%, while earnings grew 1.83%. The majority of sectors remained positive. As of 5/15/19, approximately 10% of the S&P 500 companies have not yet reported earnings, so these numbers may change somewhat. Source: Bloomberg 2
  3. 3. Earnings Were Generally Better Than Expected Experience Insight Impact Expectations remain essential to the investment process. Earnings beat consensus expectations by 6.45% on average. Reported sales were consistent with consensus estimates. According to Factset, 76% of S&P 500 companies have reported a positive EPS surprise and 59% have reported a positive revenue surprise. Source: Bloomberg 3
  4. 4. Earnings Surprise Large in Hindsight Experience Insight Impact This chart represents the percentage amount that earnings are above analysts’ expectations for the last nine quarters. The yellow oval highlights the S&P 500 earnings surprise for this past quarter (Q1 2019). During 2018, changes in tax policy boosted earnings growth on a one-time basis. Despite the Fed raising interest rates and sanguine earnings expectations in 2019, business trends were strong enough to produce sizable earnings beats. 4 Source: Bloomberg
  5. 5. How Does Trade Impact Company Earnings? Experience Insight Impact Coming into the Q1 earnings season, there were concerns in the market about the impact of the stronger U.S. dollar, slower global economic growth, and trade tensions on companies in the S&P 500 with higher international revenue exposure. The data has confirmed trade tensions do impact earnings. According to Factset, for companies that generate more than 50% of sales inside the U.S., the blended earnings growth rate is 6.2%. For companies that generate less than 50% of sales inside the U.S., the blended earnings decline is -12.8% 5 Source: Factset
  6. 6. Market Perspective - May 2019 Experience Insight Impact Conclusion: Sales and earnings growth in 2019 has exhibited stronger than expected trends, despite macroeconomic headwinds. Looking forward, investors will need to see some progress in global trade talks and global leading indicators in order to remain optimistic on future growth. Earnings disruptions are certain to occur the longer the dispute drags on. Our approach to portfolio management remains flexible, and we will continue to analyze the evidence as it presents itself in the months ahead. 6
  7. 7. Disclaimer Experience Insight Impact Opinions expressed in this commentary may change as conditions warrant and are for informational purposes only. Information contained herein is not intended to be personal investment advice for any specific person for any particular purpose. We utilize information sources that we believe to be reliable but cannot guarantee the accuracy of those sources. Past performance is no guarantee of future performance; investing involves risk and may result in loss of capital. No graph, chart, formula or other device can, in and of itself, be used to determine which securities to buy or sell, or when to buy or sell such securities, or can assist persons in making those decisions. Consider seeking advice from a professional before implementing any investing strategy. 7

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