Typical estimate cuts in an atypical environment. S&P 500 Index earnings estimates for the next 12 months have fallen by 1.8% during earnings season, in line with historical averages despite significant headwinds of tariffs, slower global growth, a strong dollar, and more. Perhaps a hollow victory, this performance reflects corporate America’s resilience. With just a dozen S&P 500 companies left to report, second quarter 2019 earnings are tracking flat year over year despite a 1.5 percentage point drag from Boeing (FactSet data), while earnings rose as much as 3% according to other widely followed data sources such as Refinitiv (formerly Thomson Reuters).
investors digested back-and-forth trade headlines. On Friday, the S&P 500 fell 2.6% as President Trump announced higher tariffs on almost all Chinese imports, and ordered U.S. companies to stop doing business with China after China announced additional tariffs on $75 billion in U.S. goods. Then, White House officials announced they were laying the groundwork for new trade talks with China, boosting equity prices around the world this morning.
Powell speaks, markets listen. Investors had a couple of opportunities to gauge the direction of the Federal Reserve’s (Fed) last week. The most closely watched event was Fed Chair Jerome Powell’s speech in Jackson Hole, WY, Powell’s first public address since the Fed cut rates in July. While Powell largely stuck to his standard talking points, he highlighted increasing risks from a deteriorating global economy and trade uncertainty. We’ll analyze Powell’s comments more in our LPL Research blog later today.
Weekly Economic Calendar. In the week ahead, investors will get a second look at second quarter gross domestic product (GDP) on Thursday, August 29. The August reading of the Conference Board’s Consumer Confidence Index will be released Tuesday, while July core personal consumption expenditures (PCE) will be released Friday. Internationally, investors will be focused on the first revision for second quarter German gross domestic product, which initially showed that its economy contracted in the quarter.
Lower GDP expectations. Business investment remains a critical component in determining the extent to which this record economic expansion can persist. Unfortunately, the delayed trade negotiations and increased tariff threats between the United States and China have led businesses to hold back on their capital expenditures. Year-over-year growth in orders for nondefense capital goods (excluding aircraft) has grounded to a halt, averaging just 0.3% over the last three months. In response, we’ve lowered our 2019 GDP forecast to 2%, insinuating that growth will slow further in the second half of the year. Check out this week’s Weekly Market Commentary for more details.
Weekly Market Performance. Investors endured another volatile week amid trade headlines, Fed commentary, and light volumes. The S&P 500 slid for a fourth straight week, its second four-week losing streak since 2014. Check out our new Weekly Market Performance report for more context on last week’s market action.
LPL Research on CNBC. LPL’s Senior Market Strategist Ryan Detrick was on CNBC’s Squawk Box this morning, talking the ups and downs of bull markets. You can watch the full interview here.
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