by Connor Darrell
CFA, Assistant Vice President – Head of Investments
U.S. equities moved modestly higher last week, helped along by the release of the minutes from the most recent Federal Reserve policy meeting, which seemed to provide further evidence that policy tightening may be put on pause. Market sentiment has changed dramatically since the end of 2018, and the Dow Jones Industrial Average has now achieved its longest streak of weekly gains in nearly 25 years. However, economic data released last week was mixed, and many of the risks that concerned markets during 2018 still lurk.
International stocks outperformed their U..S counterparts despite rising uncertainty surrounding the potential fallout from a “no-deal” Brexit and some disappointing European manufacturing data.
Q4 2018 Earnings Update
Roughly 90% of companies in the S&P 500 have now reported Q4 2018 earnings. According to Factset, the blended earnings growth rate for those companies that have reported is 13.1%, a full percentage point higher than the estimates that were in place at the end of 2018. However, the data hasn’t been all rosy. During earnings calls, 68 S&P 500 companies have issued negative EPS guidance and only 25 have issued positive EPS guidance. Additionally, profit margins for U.S. companies are expected to show a year-over-year decline for the first time since 2016.
As the economic cycle continues to mature, it is reasonable to expect a moderation in corporate earnings and profitability, especially when considering the uncertain macroeconomic environment (concerns over escalating trade tensions, Brexit, etc.) that global businesses have faced over the past several quarters. All in all, the first earnings reporting season of 2019 has brought no major surprises, and the double-digit earnings growth rate posted during Q4 is still a healthy one.