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Corporate earnings are strong and lift markets to near high levels

by Fortem Financial October 21, 2019

Last week the S&P 500® Index (0.54%) posted its second consecutive weekly gain on the strength of corporate earnings. For the week the Russell 2000® Index (1.56%) led the major indices followed by the S&P 500® (0.54%) and the Nasdaq (0.40%) while the Dow Jones Industrial Average fell -0.17%. The Dow lost ground on reports from Johnson & Johnson of a baby powder recall (due to traces of asbestos) and Boeing (on reports the company failed to disclose “concerning” instant messages in 2016 by pilots regarding the 737 Max flight control system).

Earnings season began with positive reports from a diverse group of companies including JP Morgan Chase, Citigroup, Coca-Cola, Honeywell and United Airlines. Approximately 15% of companies in the S&P 500® reported last week; 80% exceeded lowered expectations for earnings and revenues. Jamie Dimon, CEO of JP Morgan Chase, commented that “the U.S. economy, GDP growth has slowed slightly. The consumer remains healthy with growth in wages and spending, combined with strong balance sheets and low unemployment levels. This is being offset by weakening business sentiment and capital expenditures mostly driven by increasingly complex geopolitical risks, including tensions in global trade.” Russell 2000® companies will begin reporting this week.

U.S. and Chinese negotiators are scheduled to meet this week; the Phase one agreement announced last week by President Trump could be signed as early as next month; uncertainty remains, however, as the Chinese negotiators refer to “progress” rather than a “deal.” Also, the U.S. Congress is considering resolutions in support of Hong Kong. China’s economic data released on Friday reported a 6.0% third quarter GDP, the weakest since 1992. Experts point to mounting pressures on the domestic economy with a sharp deceleration in consumer spending and slower growth in infrastructure spending. Clearly both the U.S. and Chinese economies face mounting pressures for a resolution of tariff uncertainties. Elsewhere, the new Brexit agreement between the European Union and the United Kingdom was voted down by the UK Parliament on Saturday. 95% of the deal is reportedly the ‘old Brexit’ deal negotiated by Teresa May; the Irish border issue represented the major challenge.

Early earnings commentaries suggest that companies are exceeding analysts’ guarded expectations yet managers remain cautious pending progress on trade. Investor resilience, though, supports market indices within 5% of the record highs. A trade breakthrough might then provide further upward movement.

Source: Pacific Global Investment Management Company

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Sincerely,

Fortem Financial

www.fortemfin.com

 

 

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Data Sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market Data: Based on reported data in WSJ Market Data Center (indexes); U.S. Treasury (Treasury Yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness.

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The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighed index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

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