Market Update: Mon, July 22, 2019 | LPL Financial Research

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Daily Insights

Solid start for earnings season versus expectations. With 20% of the S&P 500 Index companies’ results in, second quarter 2019 earnings for the Index are tracking to a 1.9% year-over-year decline, about 1 percentage point above the June 30, 2019, estimate. Financials and technology companies have driven most of the upside. Earnings estimates for the next 12 months have fallen by 0.5% since June 30, reflecting tariff costs, slower global growth, and a strong U.S. dollar. Over 140 S&P 500 companies will report results this week.

Earnings-Dashboard-7.22.19

Markets follow the Fed. Global stocks are mostly higher but generally quiet this morning following the S&P 500’s worst weekly performance since May. The S&P 500 fell 1.2% last week as investors tried to gauge the Federal Reserve’s (Fed) stance on rate cuts. Some market participants think the Fed will implement a 50 basis point (.50%) rate cut at its July 30-31 meeting, a prediction that Fed speakers dismissed late last week. At any rate, markets are overwhelmingly positioned for some sort of cut, and we agree with the consensus that the Fed will likely enact a 25 basis point (.25%) “insurance” rate cut.

Signs of progress on trade. Face-to-face talks between lead negotiators from the United States and China may happen soon, based on evidence that the freeze may be thawing. According to media reports, preparations for Chinese purchases of U.S. agriculture products are underway and some requests for tariff exclusions have been granted. Other positive signs include allowing American companies to supply Chinese telecom giant Huawei and China’s move to further open up its financial sector to foreign investors.

A consumer-driven quarter. We expect to see that last quarter’s gross domestic product (GDP) growth rested squarely on consumers’ shoulders in this week’s GDP report. We’re encouraged by strength in consumer spending, especially in the face of global headwinds, but we’re still searching for signs of broad-based growth. In this week’s Weekly Economic Commentary, we’ll preview the second quarter GDP report and outline our expectations for the makeup of output growth, which could ultimately determine the future path of this expansion.

The S&P 500 is very close to our year-end fair value S&P 500 target of 3,000. The S&P 500 is up 20% year to date (total return) and stands less than 1% from our year-end fair value range of 3,000 that we set in November 2018 and have maintained since then. In today’s LPL Research blog and Weekly Market Commentary, we explain why we have not changed our target or recommended reducing equities. One of the primary reasons we are not recommending investors reduce their equities allocations is the Fed is at our backs, and for now, we’ll ride the wave.

Week ahead. In the week ahead, in addition to the flurry of second quarter earnings reports from corporate America, durable goods orders and the first preliminary second quarter GDP print (Bloomberg consensus is 1.8% quarter over quarter annualized) headline the docket in the United States. The international economic calendar is filled with Purchasing Managers’ Index (PMI) data releases, with France, Germany, Japan, and the composite Eurozone all set to report numbers. The European Central Bank will meet Thursday, July 25.

 

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