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A Solid Q3 Earnings Season - October 24, 2018

Aided by a stronger U.S. economy and a cut in the corporate tax rate, Q3 earnings have been strong.

  • With 22% of S&P 500 companies having reported (10.23.18), S&P 500 profits are projected to rise 22.1% from a year ago (Thomson Reuters).

  • Revenues are projected to rise 7.3% versus a year ago.

  • About one-third of S&P 500 companies report this week.

Headwinds we’re hearing—

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Death Valley and Bond Yields - October 22, 2018

Death Valley is in California. Besides its reputation for summertime temperatures of 120 degrees, it’s also known as the lowest spot in the USA – 282 feet below sea level. Following the recession in 2008-09, the yield on the 10-year Treasury took a trip to Death Valley, falling to just 1.37% in July 2016 (St. Louis Federal Reserve). Put another way, you could lend Uncle Sam cash for 10 years and earn 1.37% per year.

As Figure 1 illustrates, the yield was the lowest in over 100 years. In fact, July’s bottom is the lowest in the history of the Republic, according to BofA Merrill Lynch. Notably, the spike in yields in the 1970s was an anomaly when viewed from a long-term perceptive.

10 22 18 treasury yield

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The Anatomy of an 831-Point Decline - October 15, 2018

The Dow Jones Industrials fell 831 points, or 3.3%, on Wednesday (WSJ). Thursday saw a 546-point drop. A 1,175-point decline (4.6%) on February 5, followed by a 1,032-point drop (4.2%) on February 8, are the largest (St Louis Federal Reserve).

10 15 18 index

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831 Point Drop in the Dow (3.1%) - October 11, 2018

The fundamentals really do matter (until they don't).

1. The economy is expanding at a solid pace; recent data have been strong.
2. Q1 and Q2 profits were strong and Q3 is looking very upbeat
3. Inflation isn't showing signs of accelerating.
4. Interest rates remain low (10-year Treasury at levels not seen since the late 1950s, excluding recent years).

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