Looking at all the data this past week, the metric that jumped out was the 15 basis point climb in the 10-year Treasury yield from 2.85% to 3% even as CPI came in softer than expected.
Thomson had Oracle (NYSE:ORCL) reporting this past week in last weekend's "This Week in Earnings," but that was clearly incorrect. Briefing.com's earnings calendar has Oracle and FedEx (NYSE:FDX) reporting Monday night, September 17th after the closing bell, while Lennar (NYSE:LEN) and Micron (NASDAQ:MU) report Thursday, September 20th, 2018.
This coming week, readers will see a nice cross section of the US economy reporting earnings for the period ended August 31: Enterprise Software (ORCL), a large-cap Transport with ties to International and Domestic freight (FDX), a mid-range homebuilder with national scale (LEN), and a commodity/cyclical tech hardware company (MU).
The trend in the annual 2019 Thomson Reuters IBES earnings estimate for the S&P 500:
- 9/14/18: $178.85, +0.15% 4-week change
- 8/17/18: $178.58, +0.70% 4-week change
- 7/13/18: $177.16, +0.12% 4-week change
- 6/15/18: $176.94, +0.19% 4-week change
- 5/18/18: $176.61, +1.45% 4-week change
(Data Source: Thomson Reuters "This Week in Earnings")
Summary/conclusion: relative to the current, full-year 2018 estimate for the S&P 500, 2019's estimated earnings growth is expected to slow or "revert to the mean" or long-term average as this blog has been writing about for a few months, but this is neither a red flag nor a warning about a longer-term bear market. Looking at the numbers, for 2018, 2019's full-year EPS estimate was rising 3-4% coming out of the first quarter of 2018, but now has slowed as analysts' inherent caution about the future takes root.
But please note how the expected 2019 S&P 500 estimate - the absolute number - continues to climb.
2019 S&P 500 EPS is expected (given the above numbers) to be up 10% next year, relative to the current 2018 estimate, and my own personal opinion is that 2019 will eventually be a little higher than that, having tracked this data over the years.
An interesting exchange was had with a reader on Seeking Alpha about the quality of S&P 500 earnings, which - in my opinion - is much higher today than in the late 1990s, simply because the respective valuations of the S&P 500 and the Nasdaq give little incentive to "stretch" the accounting principles to get a revaluation of your stock price. Unless you are a cannabis company today, market valuations, while certainly elevated, remain reasonable across the indices, although there are some exceptions with individual companies and sub-sectors.
The biggest plus for this secular bull market, in my opinion, is the continued "wall of worry" that seems to have to be overcome on a weekly basis. I thought this market commentary published late this past week by Liz Ann Sonders and Jeffrey Kleintop of Charles Schwab (NYSE:SCHW) (and in the interests of full and fair disclosure, Trinity custodies all client assets at Charles Schwab & Co, Inc.) articulated the case perfectly.
Ben Bernanke is out with public comments about how 2020 could be a "Wile E Coyote" moment leading to a recession or a bear market (and those can be two very different animals, or maybe both), while Ray Dalio and David Tepper, the noted hedge-fund managers, were less than bullish in their recent public comments. Robert Shiller, the noted Nobel laureate, noted recently that, more or less, the market will continue to rally and then correct sharply (Not making that up - that was the rough quote seen online).
The pessimism surrounding today's stock market continues to surprise me - maybe it's because the Baby Boomer generation had never seen anything like 9/11, 2001 and 2002's bear market in Tech and then the mother of all bear markets in 2007 and 2008. 2000 to 2009 was a decade of bear markets and volatility that probably won't be seen again in my lifetime.
2008 may have been the Baby Boomer generation's Great Depression condensed into 2 brutal years. I thought this blog post summed it up perfectly, and it was written back on April 23, 2018.
Tax cuts, less than 4% unemployment, jobless claims at 200k per week (and still falling), continued subdued inflation, and few table-pounding, stock market, bulls can be found.
And yet this pessimism and sentiment - in a contrarian fashion - is a substantial positive for the closet bulls.
Thanks for reading…