Market Update: Mon, May 20, 2019 | LPL Financial Research

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Daily Insights

More trade escalation. U.S. stocks are starting the week in the red as investors brace for more trade-related volatility. On Friday, the U.S. announced it would ban U.S. companies from doing business with Huawei Technologies Co. Ltd. This move could be a significant headwind for technology stocks (and global markets), and reports indicate that several U.S. chipmakers have stopped supplying Huawei. For now, the stock pullback may not be over. However, we expected some mid-year volatility after a strong start to the year, and overall, we predict the S&P 500 Index will break to new highs later in 2019.

Earnings season wraps up. We consider first quarter earnings season a success based on first quarter upside and resilience of forward estimates. It appears an earnings recession has been averted and better earnings days lie ahead, though trade uncertainty is a huge wild card. Our base case, though, remains that we will get a trade deal with China early this summer. Consensus expectations for S&P 500 earnings growth in 2019 of 3-4% may prove to be conservative, as we discuss today on the LPL Research blog and in the latest Weekly Market Commentary. As shown in our latest Earnings Season Dashboard, 92% of the S&P 500 companies’ results are in. First quarter 2019 earnings are up 1.4% year over year, 3.5 percentage points above January 1, 2019 estimates. Revenue is tracking to 0.5 percentage point upside surprise and 5.6% year-over-year increase. Forward earnings estimates have fallen by a below-average 0.5% since April 1, reflecting the better-than-feared global growth environment.

Earnings-Dashboard-5.20.19

A step back on trade. Trade tensions have flared up again, surprising investors who thought the U.S. and China were close to a deal just a few weeks ago. While the rapid back-and-forth has roiled global stocks, we suggest investors step back and consider the fundamental implications of increasing tariff rates. In this week’s Weekly Economic Commentary, which will be published later today, we’ll outline our thoughts on the economic impacts of higher tariffs.

Leading indicators rise. Coincident data this year have been mixed at best, but leading data still point to moderate growth ahead. The Conference Board’s Leading Economic Index (LEI) rose 2.7% year over year in April, the slowest pace of growth since February 2017. Year-over-year growth in the LEI has stayed positive for 113 months, even though the pace of growth has slowed recently. Historically, the LEI has fallen negative year over year before all nine recessions since 1955.

Week ahead. Investors will have their attentions set on the Federal Open Market Committee meeting minutes on Wednesday. Overseas, a slew of Purchasing Managers’ Index data is slated for release, with Germany, Japan, and the composite Eurozone on the docket. Track these and other important events on our Weekly Global Economic & Policy Calendar.

LPLResearch-Monitoring-the-Week-Ahead

Click Here for our detailed Weekly Economic Calendar

Monday

Tuesday

Wednesday

  • FOMC Meeting Minutes (May 1)
  • Nikkei Japan Manufacturing PMI (Preliminary, May)

Thursday

  • Initial Jobless Claims (May 18)
  • Markit US Manufacturing PMI (Preliminary, May)
  • Markit US Services PMI (Preliminary, May)
  • Markit US Composite PMI (Preliminary, May)
  • New Home Sales (MoM Apr)
  • Kansas City Fed Manufacturing Index (May)
  • Germany GDP Report (Q1)
  • Markit Germany Services PMI (Preliminary, May)
  • Markit Eurozone Manufacturing PMI (Preliminary, May)
  • Markit Eurozone Services PMI (Preliminary, May)
  • Japan CPI Report (Apr)

Friday

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Index data obtained via FactSet

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