The next four weeks will be a major turning point for European investors. France is in the middle of what is arguably its most important election cycle since World War II. The results of the second round of presidential elections, as well as parliamentary elections scheduled for mid-June, will determine if France maintains its historical position as one of the primary advocates for European integration and identity or if anti-European candidates garner additional power. France is both literally and figuratively at the center of Europe, and the concern that it will become more anti-European may be having greater impact on the markets than is apparent at first. Even with pressing political issues, it’s important not to overlook corporate fundamentals, which have also been seeing a meaningful reversal. European corporate earnings experienced a strong rebound at the end of 2016, with consensus expectations from Thomson Reuters of another 20% increase over 2017. These are optimistic forecasts, and though certainly possible, combined with the political uncertainty has kept LPL Research from recommending European equities on a tactical basis.
Some significant technical trend lines are in play, so we take a closer look at market technicals and sentiment this week. The longer-term technicals continue to look strong, and an evaluation of global market breadth suggests the path of least resistance remains higher for stocks. However, sentiment remains a much more mixed picture indicating that market volatility could finally be heating up.
Over the next few weeks, analysis of the Trump administration’s first 100 days will increasingly dominate the news cycle (April 29 is day 100). From a policy perspective, all of the action (or lack thereof) will take place over the rest of 2017 and into 2018, which is a more realistic time frame for implementing major agenda items. During that time, corporate tax reform will likely take center stage.
The S&P 500 is poised for double-digit earnings growth in the first quarter. Earnings season gets underway this week and corporate America is poised to show a strong increase in its bottom line. The S&P 500 appears likely to produce doubledigit year-over-year earnings growth for the first quarter, powered by energy’s rebound from the oil downturn that battered the sector early last year. Last year’s first quarter marked the trough of the earnings recession as S&P 500 earnings fell 5%, setting up an easy comparison for the first quarter of 2017 [Figure 1]. This week we preview the upcoming earnings season. Continue reading “First Quarter 2017 Earnings Preview”
Minutes from the most recent Federal Reserve (Fed) meeting, released last Wednesday, sparked selling of stocks and bonds, as investors read that the Fed may reduce its $4.2 trillion balance sheet. Minutes also revealed that “some Fed officials viewed equity prices as quite high relative to standard valuation measures” and that there are “downside risks” if “financial markets were to experience a significant correction.” As we mentioned last week, we believe the stock market reaction to the Fed minutes was overdone, but nevertheless, investors should take the ending of Fed accommodation seriously.
On Friday, January 27, 2017, the Bureau of Economic Analysis (BEA) will release the first (“advance”) estimate of U.S. gross domestic product (GDP) for the fourth quarter of 2016.
While this is our first official look at GDP for the quarter, data that feed through to GDP started coming out several months ago, starting with data for October 2016, the first month of the quarter. As a result, compared with more frequent economic data points, GDP is quite backwards looking. By the time the BEA actually reports GDP, some of the data will be based on economic activity that had taken place almost four months prior.
Fourth quarter 2016 earnings season gets underway this week (January 9–13), and it looks like it will be another good one. With Alcoa no longer the unofficial kick off of the earnings season, we will consider Friday the start of the season when several big banks with the potential to move the market will report. Here we preview fourth quarter earnings season, which we expect to be another good one, marking the return of earnings growth to the energy sector.
Read Judy VanArsdale’s spoken testimony from last Wednesdays’s Ways and Means Subcommittee on Oversight hearing on the Department of Labor’s proposed fiduciary rule. ‘This is my life’s work, and I have a great passion for what I do… Let’s all work together to craft a fiduciary rule that is workable and protects the best interest of all investors.’ Way to go Judy!
Congratulations to Judy VanArsdale! This past Wednesday, Judy testified at the Ways and Means Subcommittee on Oversight hearing on the Department of Labor’s proposed fiduciary rule. Congressman Roskam extended the invitation to discuss the work Judy does every day to help her clients save for their futures and to highlight the ways in which the DOL proposed fiduciary rule could impact her work and the ability of millions of American to save for their retirement. We are so proud of you, thank you for being our voice!