Earnings picked up a bit of ground last week. With 484 S&P 500 Index companies having reported, fourth quarter 2018 earnings growth is tracking to 16.7% year over year, 2.5 percentage points (ppt) above mid-January estimates and a 0.4 ppt increase over the prior week. Energy has produced by far the biggest upside surprise for the quarter, with communication services a distant second. The season is effectively over – the 10 S&P 500 companies reporting this week will bring the total to 494. Note that this will be our last earnings dashboard of this reporting season.
Lower bar. Slower global growth and trade tensions contributed to reduced earnings estimates for the S&P 500 2019-specifically, the 3.3 ppt reduction is slightly more than average; but if energy estimate cuts are excluded, the reduction is quite typical. We believe the lower bar-particularly for the current quarter-and likely China trade deal may support upside to near-term estimates, though we acknowledge anything better than mid-single digit S&P 500 earnings growth this year will be difficult to achieve.
An aging economic cycle. As the bull market’s birthday nears, we’ve reflected a lot on the durability of the current economic cycle. The U.S. economic expansion is entering its 118th month, on track to become the longest recovery on record in July. In this week’s Weekly Economic Commentary, and on the LPL Research blog later today, we’ll highlight the drivers of this expansion’s durability, and outline evidence that suggests this cycle could persevere at least through the end of 2019.
Trade deal? U.S. stock futures are higher this morning on reports suggesting the U.S. and China are close to agreeing on a trade deal that could eliminate most or all existing tariffs. While there are scant details on the potential agreement, the positive headline is an encouraging signal to investors looking for clarity on trade risk has dampened global sentiment over the past few months.
Manufacturing health still sound. ISM and Markit Purchasing Managers’ Index (PMI) reports released late Friday morning showed U.S. manufacturing activity slipped in February. ISM’s PMI fell to 54.2, a two-year low, while Markit’s flash PMI dropped to 53, the lowest since September 2017. While both measures are in decline, they remain solidly in expansionary territory, and any resolution on the trade front could lift global demand and support manufacturing worldwide.
Bull market’s tenth birthday. The S&P 500 bull market will celebrate its tenth birthday on Saturday, March 9, 2019. During that period, the S&P 500 has increased more than fourfold in value including dividends, producing a total return of 409% (17.7% annualized) while rising 313% in price. Concerns over the global economy, along with a potential policy mistake by the Federal Reserve (Fed) and the trade dispute with China, all have many wondering just how much the longest bull market ever could have left in the tank. In today’s Weekly Market Commentary, we’ll show why this bull market is indeed alive and well and could make it to 11 next year.
The week ahead. This week’s U.S. economic docket is headlined by the February nonfarm payrolls report. Overseas, the European Central Bank meets and fourth quarter Eurozone GDP will be released. Japan’s fourth quarter GDP is also due out, along with Chinese consumer and producer inflation. Track these and other important events on our Weekly Global Economic & Policy Calendar.
- Markit US Services PMI (Preliminary, Feb)
- Markit US Composite PMI (Preliminary, Feb)
- ISM Non-Manufacturing Index (Feb)
- New Home Sales (MoM, Dec)
- Markit Eurozone Composite PMI (Feb)
- Eurozone Retail Sales (Jan)
- Durable Goods Orders (MoM, Jan)
- ADP Employment Report (MoM, Feb)
- Federal Reserve Beige Book (March)
- Initial Jobless Claims (Mar. 2)
- Nonfarm Productivity (QoQ, Q4 2018)
- Japan Leading Index (Preliminary, Jan)
- Japan Coincident Index (Preliminary, Jan)
- Eurozone Employment (Q4 2018)
- Eurozone GDP Report (Q4 2018)
- European Central Bank Rate Decision (March)
- Japan GDP Report (Q4 2018)
- Nonfarm Payrolls Report (MoM, Feb)
- Unemployment Rate (Feb)
- China CPI Report (Feb)
- China PPI Report (Feb)
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