Every three months all companies that trade publicly are required to report their business results for the previous quarter. Although not all companies report according to the calendar quarters, most of them do, and during the second week of April we began to witness the quarterly onslaught of earnings reports for the first quarter of 2019.
Most reports come by way of a press release. The press releases are followed by a conference call with analysts that are available for anyone to listen in. A few hours later, transcriptions of those call are usually available.
Through these reports, we find out what is going on inside those businesses in real time.
REAL-TIME ECONOMIC NEWS
While the economic reports that come from government agencies certainly tell us what has been going on in the economy, what we want, as market investors, is to see anything that might indicate a change in direction of economic momentum.
Most economists (and the Fed) use the recent economic data to make their forecast, but that is akin to driving while looking in the rear-view mirror…not usually the best practice. The economic windshield only provides glimpses into the future through the anecdotal reports of pubic companies and individuals, most of which only tell us what is happening in a limited segment of the economy.
Occasionally though, a company’s view might be broad enough to give us real insight into the overall direction on the economy. By connecting the dots between several of these reports, we sometimes see patterns emerge that give us clues into the strength of the economy as a whole.
This is probably the case with the nation’s big banks which have insight into many areas of the economy. Companies such as FedEx, which serves all the world’s major economies, also have insight into broad areas of the economy.
JPMorgan CEO Jamie Dimon started things off Friday (April 12th) with an optimistic comment:
“Even if you look at the American economy, the consumer's in good shape, the balance sheet's in good shape, people are going back to the workforce. Companies have plenty of capital, and capital expenditure is still up year-over-year…Business confidence and consumer confidence are both rather high…it (the economic expansion) can go on for years. There's no law that says it has to stop.”
Over the next several weeks we should continue to hear reports from CEOs around the world who will hopefully continue to let us know that the economic expansion is healthy and not showing signs of exhaustion. Estimates do show expectations of a 3-5% decline in corporate earnings during the first quarter, but Federated’s Phil Orlando put that forecast into context, blaming recent market volatility on “transitory Issues”:
“The issues that drove stocks lower—the imminent fear of recession, uncertainty over Federal Reserve policy and the federal government shutdown—are now off the table. With the brutal winter weather also behind us, several of the key economic metrics we monitor are starting to turn positive this spring, including the labor market, consumer spending, manufacturing, and business and consumer confidence.”
We participated in a “webinar” last week (April 9) with Raymond James’ new Chief Investment Officer, Larry Adam, who recently joined us from Deutsche Bank . In a very impressive, fact-filled presentation, Adam laid out the case that:
”U.S. economic growth is expected to remain robust with only a small probability of recession.. U.S. corporate earnings are expected to reach another record in 2019, supporting the upward march of equity prices.”
He cautioned, however, that we should expect more volatility as a result of continued policy uncertainty, which he suggests would benefit active portfolio managers. Obviously, taking a long-term view is important.
No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.
With this positive viewpoint shared by all our favorite pundits, we believe we should also prepare our portfolios for more volatility. December, 2018 gave us a taste of volatility and, as we meet with clients, we have been asking them how the December drop made them feel. Even though we believe a conservative portfolio will always eventually recover from any market correction (even 2008), it is important for us to know that our clients can survive those corrections without panicking.
Now is a great time to review your holdings and make any changes necessary to ensure that you can handle any volatility we might see in the future. Please call and schedule an appointment if we haven’t had that conversation yet. As we always remind you, please call if you need any reassurance that your portfolio is positioned to meet your financial needs. We always enjoy your calls.
Any opinions are those of Dave Crouch and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
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