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The Northern Star 06/28/18 The Power of Corporate Earnings

Message from Jon

Market Update:


We are seeing the pressure of the tariff and import strategy set forth by our current administration set upon the markets this past several trading days. The news cycle regarding the policy of immigration and the separation of families seems to be adding to the internal strife of the US at the moment but is not having a substantial impact on the markets as a whole.


The main issues concerning the markets at the moment center on OPEC, Central Banks raising rates to combat inflation, and the tariff chess match currently happening.


News Cycles


Noise and Non-Impactful:

  • President Trump's decision to segregate and handle illegal immigrant families


Impactful and Important:

  • Fed Raising Rates.
  • OPEC's decision to increase outputs to impact supply versus demand levels on Oil.
  • Tariff increases to impact our trade parties and add an element of divisiveness to the current Geopolitical Climate.


The indicators and market data we follow are telling us nothing new at present.


Stormguard is actually still increasing as the measures of Market Momentum, Value Sentiment, Maclellan AD Oscillator (MACD), and the Delta Market Sentiment are all on the rise at the moment. We are seeing a retreat in the strength of Foreign Equities as an asset class. We are also seeing both fixed income and cash begin to show slight increases upward in relative strength but the change is not large enough to have significant impact at this moment.


All in all, right now the markets seem to be locked in a tug-o-war influenced by the geopolitical tensions as well as changes to our monetary policy. The best course of action is to avoid over-reaction to the news cycles and to stay the course until the evidence suggests we change.


 Till we speak again, enjoy your week!












The Power of Corporate Earnings


Stocks stumbled across the globe last week as trade tensions continued to escalate. Despite rebounding somewhat on Friday, the S&P 500 experienced its first weekly loss in a month, and the Dow posted its worst week since March.[1] The S&P 500 dropped 0.89%, the Dow lost 2.03%, and the NASDAQ fell 0.69%.[2] International stocks in the MSCI EAFE gave back 0.98%.[3]

While trade headlines may affect market performance, a closer look at the data shows other, more powerful drivers affecting equity prices. In particular, many investors continue to focus on corporate earnings estimates.[4]
Analyzing Corporate EarningsStrong corporate earnings have helped maintain a sense of market balance in 2018. As the media focuses on political stories, corporate earnings estimates continue to rise - and have a greater market affect than many investors may recognize.[5]

  • How Corporate Earnings Estimates Work

Many financial services companies hire analysts to predict how much a company's stock will earn per share. The average of all the experts' predictions creates a consensus earnings estimate. This calculation gives a rough view of the company's cash flow - which helps investors value a stock. Generally, when a company beats its earnings estimate, the stock price goes up. If it misses or matches the prediction, the stock may suffer.[6]

  • Where We Are Now

Tax cuts and increasing demand have helped earnings estimates grow this year. As the estimates have risen, companies with the largest increases are significantly outperforming those with the worst. The latest numbers show earnings per share growing in 2019 and 2020 - and 2018's projections are higher than they were at the end of the 1st quarter. This data has helped keep markets from overreacting to the geopolitical buzz in the background.[7]

Looking ForwardWhile we expect to hear more on a potential trade war, we will continue to focus on key market principals. This week, we will receive several reports, including consumer confidence and durable goods orders. Rather than significantly affecting stocks, these releases may simply underscore what corporate earnings and other data continue to demonstrate: Right now, the economy is healthy.[8]

Next month, earnings season will begin, and analysts expect S&P 500 companies to show 20% profit growth in the 2nd quarter.[9]

Looking ahead, we will continue to analyze how rising tariffs could affect the domestic and global markets. But, as always, economic fundamentals will take the lion's share of our attention.

If you have questions about earnings, trade, or your future, contact us any time.


Tuesday: Consumer Confidence
Wednesday: Durable Goods Orders
Thursday: GDP,Jobless Claims
Friday: Personal Income and Outlays, Consumer Sentiment

Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

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Diversification does not guarantee profit nor is it guaranteed to protect assets.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia, and Southeast Asia.  
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[1] www.cnbc.com/2018/06/22/us-stock-futures-dow-data-oil-trade-and-politics-on-the-agenda.html

[2] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX®ion=usa&culture=en-US
[3] www.msci.com/end-of-day-data-search

[4]  www.marketwatch.com/story/stock-market-leaders-yet-to-be-undercut-by-trade-war-fears-2018-06-23

[5] www.bloomberg.com/news/articles/2018-06-22/trade-is-an-afterthought-in-stock-market-still-glued-to-earnings
[6] www.investopedia.com/articles/stocks/06/earningsforecasts.asp
[7] www.bloomberg.com/news/articles/2018-06-22/trade-is-an-afterthought-in-stock-market-still-glued-to-earnings
[8] www.marketwatch.com/story/stock-market-leaders-yet-to-be-undercut-by-trade-war-fears-2018-06-23

[9] www.bloomberg.com/news/articles/2018-06-22/trade-is-an-afterthought-in-stock-market-still-glued-to-earnings

[10] www.goodhousekeeping.com/food-recipes/a9038/new-england-clam-chowder/

[11]  www.irs.gov/newsroom/the-right-to-retain-representation-taxpayer-bill-of-rights-9
[12] www.golfdigest.com/story/two-simple-words-to-help-drop-the-ball-in-the-cup

[13]  www.webmd.com/eye-health/cataracts/default.htm
[14]  www.earthshare.org/2008/09/take-care-with.html
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