The Northern Star 4/30/18, Earnings Rise, Stocks Stumble

Message from Jon

Markets Update:

This past week opened the earnings season for 1st quarter of 2018. We saw numerous companies beating street estimates, which is often a good sign. In my opinion, I think it is challenging to read which of the companies received a boost from the tax reform and which have legitimately sold more widgets and had higher profits as a result...AND...if they did, can they continue to do so? I guess we will have to wait and see.

In addition to last week's earnings, we saw Stormguard resume it's slow decline towards bearish territory. DorseyWright is showing bearish sentiment on 14 out of it's 18 charts it uses to measure the indexes in the markets. While we are seeing declining technical merits of the markets, data is still demonstrating a bullish trend over-all (more like a cautious optimism) and as such, minor tweaks to portfolios vs major overhauls are warranted.

We have downshifted portfolio risk levels over the past weeks to remain in alignments with overall sentiment and trends but at this point, we are refraining from positioning for defense since there is no overwhelming evidence to support this kind of move.

Cash is king!

With the recent interest rates migrating upward, we are seeing Money Market Values also capturing a higher level of returns. In an recent article by WealthManagement.com,  "The Crane 100 Money Fund Index, which measures the average yield of the 100 largest taxable funds, registered 1.47 percent as of March 31. And the Crane Money Fund Average, the average yield of all taxable funds, totaled 1.27 percent. "

History Made:

We witnessed an event in history I personally never thought I would see in my lifetime! The leadership of North and South Korea met for peaceful reasons! Let's hope it holds and demonstrates to other nations around the planet that anything is possible if you are willing to work together.

Synopsis:

The markets are engaged in a tug-o-war between supply and demand at the moment. Caution is the correct approach.

Till we speak again, enjoy the warmer weather!

Jon

Source:

1. http://www.wealthmanagement.com/fixed-income/cash-once-again-king
2.  http://alphadroid.com/InfoPages/Market-Sentiment2.aspx
3.  https://oxlive.dorseywright.com/?port_id=59231&page=1&sort=asc&sort_header=fund_score
4.  https://www.nytimes.com/2018/04/27/world/asia/north-korea-south-kim-jong-un.htm Disclaimers:

Disclaimers:
http://business.nasdaq.com/intel/dorsey-wright/disclosures-tou.html
 

http://alphadroid.com/InfoPages/disclaimers2.aspx

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We just finished the busiest week of 1st quarter earnings season, and although many companies shared positive results, stock indexes experienced modest declines.[1] The S&P 500 lost 0.01%, the Dow dropped 0.62%, and the NASDAQ gave back 0.37%.[2] International stocks in the MSCI EAFE decreased by 0.39%.[3]

Last week provided a variety of information for investors to take in. On Friday, we received the initial reading of 1st-quarter Gross Domestic Product (GDP). The data came in more positive than analysts expected, with the economy experiencing 2.3% growth.[4] The latest employment readings also showed costs for benefits and pay rising at the fastest pace in a decade.[5] On the geopolitical front, the leaders of North and South Korea met for historic talks that could result in denuclearizing the Korean peninsula.[6]  

As we continue to watch these developments, we want to explore what's behind our current corporate earnings season.

A Deeper Analysis of Corporate Earnings

So far, this earnings season is the best on record.[7] Of the S&P 500 companies with published data, 79.4% of them beat expectations.[8] The outperformance is significant, too. On average, companies are 7.95% higher than projected.[9]

Despite these positive results, stock prices did not rise in reaction. Companies that beat expectations have only experienced an average of a 0.3% equity increase in the first day after their report.[10] The disconnect between high earnings and low stock increases may be surprising. But when you look closer, lingering questions about corporate health are weighing on many investors' minds: 

• Will higher costs - including wages and materials - decrease their profits moving forward?
• Could increasing treasury yields raise the cost of their debt?
• Will they continue to benefit from the new U.S. tax law, or is this earnings season an anomaly?[11]

No one can say for sure what is on the horizon for corporate performance. On one hand, concerns about growing costs and inflation could erode investor confidence and hamper the markets' ability to regain previous highs.[12] On the other, consumer sentiment remains high - and experts predict that each year until at least 2020, S&P 500 companies will have double-digit growth.[13] 

Looking ahead, we will monitor many different details to gain more insight into what the future may hold, including bond yields, wage costs, and inflation. For now, please contact us anytime if you have questions about current market conditions or your plans for the future. 

ECONOMIC CALENDAR

Monday: Pending Home Sales IndexTuesday: PMI Manufacturing Index, ISM Mfg Index, Construction SpendingWednesday: ADP Employment ReportThursday: Jobless Claims, Factory Orders, PMI Services Index, ISM Non-Mfg IndexFriday: Employment Situation

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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. 

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