FOR NOW IT’S ALL ABOUT CHINA! – CORPORATE EARNING SEASON RESULTS – YIELD CURVE
Here we are, May 13th, 2019 and the trade tensions with China don’t appear to be making any real progress. Last Friday, President Trump increased tariffs on $200 Billion of Chinese imported goods from 10% to 25%. We are waiting to hear how China may retaliate. This news has the stock market futures down triple digits as of this writing.
With our Federal Reserve determined to keep interest rates at bay, the China issue is something the market wants resolution to continue to power higher. One of my concerns at the beginning of the trade issue was that this can last not just a few months, however it has the potential to last for years. Let’s hope resolution comes quickly, in a positive way!
CORPORATE EARNINGS WINDING DOWN
Approximately 90% of our S&P 500 companies have reported 1st Quarter 2019 results with 76% of companies reporting positive Earnings per Share (EPS) surprise and 59% reporting positive revenue surprises.
Earnings “Growth” for the S&P 500 actually declined by (.5%).
The forward 12-month P/E ratio for the S&P is 16.5, equal to the 5-year average however above the 10-kear average of 14.7.
After an amazing increase in Corporate Earnings in 2018, it’s no surprise that earnings growth has subsided. For the market to power higher without resolution with China, the earnings growth will need to start again moving higher.
According to FACTSET, companies that do over 50% of sales inside the U.S., the earnings growth rate was 6.2%. For companies that do less than 50% of sales inside the U.S., the earnings growth rate show a decline of (12.8%). Interesting to say the least!!
LAST WEEK’S MARKET RESULTS
All indexes took it on the chin with the Dow, S&P 500 and the Russell 2000 down over (2%). The Nasdaq Composite slipped (3.03%).
On the International side, we saw the Emerging Market Stock Index down over (5%) and the EAFE Index down (2.59%)
Bonds as reflected by the Barclay Aggregate Bond Index rose .31% with the 10 Year US Treasury yield ending the week at 2.45%
YIELD CURVE – GERMAN BUND
We continue to see short-term US rates higher than our 10 Year US Treasury. Our 1, 3 and 6 month Treasury yields are lower than our 10 year yield. Some people are trying to explain this as a none issue (stock/economy bulls) and some are suggesting a recession is peaking its head, (stock/economy bears). My prediction is to not jump on either side, however watch the future of business and consumer spending and the employment situation for clues.
A year or so back, the 10 year German Bund yield was negative and then turned positive as global growth started to improve. Waking up this morning we’re seeing the 10 year Bund again, in negative territory. In France, short-term rates all the way up to a 7 year bond yield are negative and in Japan, yields are negative up to the 10 year. This has been and continues to be a concern and worth watching!!
QUESTION OF THE WEEK
401K, 403b, 457b and Roth 401K plans: If you are over age 50, what is the maximum you can contribute to your qualified plan?
Answer To Last Week’s Question!
Which method arranges your Investments to match your yearly income needs?
- a) Systematic Withdrawal approach
- b) Flooring Approach
- c) Time Segmentation Approach
- d) Bond/CD Ladder Approach
The answer is – C – Time Segmentation Approach