Market Update: Tues, Aug 13, 2019 | LPL Financial Research

Daily Insights

Earnings continue gradual improvement. With 90% of S&P 500 Index companies’ results in, second quarter 2019 earnings are tracking down -0.7% year over year, above June 30 estimates of -2.7% despite a more than 1 percentage point drag from Boeing and a modest improvement over the prior week. Forward earnings estimates have fallen by 1.5% since June 30, roughly in line with recent trends and reflecting tariff costs, slower global growth, and a 1 to 2 percentage point drag from a strong dollar. While management teams’ overall tone has been okay, tariff and trade mentions on earnings conference calls have increased.



U.S. markets decline on concerns about geopolitical risk. The S&P 500 Index fell 1.2% on Monday, Treasuries saw continued buying pressure, and gold climbed to just off a multi-year high as markets focused on geopolitical risks on a day that provided little by way of fundamental drivers. Hong Kong and Argentina were the focal points as ongoing protests closed Hong Kong’s airport, while Argentina’s market plummeted after a poor showing in primaries by the country’s center-right president. Trade uncertainty and slowing global growth continue to create sensitivity to downside catalysts, and investors may have to familiarize themselves with volatility as we move later in the cycle. However, fundamental support from ongoing fiscal stimulus, a more accommodative Federal Reserve, and few signs of a U.S. recession still leave room for potential upside.

10-year yield slides. The 10-year Treasury yield dropped to 1.65% on August 12, falling further after its biggest two-week slide since 2011. Sliding long-term yields pushed the U.S. yield curve further into inversion territory, when long-term yields fall below short-term yields. The spread between the 3-month and 10-year yields dropped to -34 basis points (-0.34%), while the spread between the 2-year and 10-year yields declined to 6 basis points (0.06%). To us, yields are sending an increasingly strong signal that U.S. monetary policy needs to better reflect market expectations before bond markets around the world can normalize.

Consumer inflation picks up. Data released this morning showed consumer inflationary pressures increased in July, signaling solid U.S. consumer demand drove price growth higher last month. The core Consumer Price Index rose 2.2% year over year, the fastest pace in six months. We’ll dive more into recent inflation data in today’s LPL Research economic blog post.

NEW Market Signals Podcast. In this week’s Market Signals podcast, LPL’s Chief Investment Strategist John Lynch and Equity Strategist & Portfolio Manager Jeff Buchbinder discuss recent market volatility and the currency battle that has become part of the ongoing trade war between China and the United States. Subscribe to the free Market Signals podcast series on iTunes, Google Play, Spotify, or wherever you get your podcasts.


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