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The Northern Star Newsletter 4/19/18: Earnings Season Begins

Message from Jon

Market Update:

Last Friday with President Trump sending missiles over to Syria, I remember thinking "Oh, Boy, Here it goes!" as I was reading through the Yahoo Headline on my phone. My wife having asked me what does that mean and the only response I could find to give is...I am not sure yet.

Flash forward to this past Monday and thinking that I would see the market open down and to the contrary, it opens up? I guess there were other pressing matters on the minds of investors and money managers than Syria?

In reading a newsletter yesterday from Eric Kuby from North Star Investment Management indicating that earnings season is not only upon us but many companies are expecting to see positive earnings reporting and this MIGHT lead to a composite earnings increase of 20% in this quarter. We will have to wait and see on this one I guess.

 In our previous messages, Crestmont Reaserch had indicated that earnings could in fact see a rise as well but they are also indicating an underperformance in the equities markets going forward. This looks like what the indicators are saying as well so at this point, we will simply wait and see how 2018 shakes out.

Till we speak again,






Earnings Season Begins


Market volatility continues. Stocks slid on Friday, April 13, but still held on to gains for the week.[1] The S&P 500 increased 1.99%, the Dow added 1.79%, and the NASDAQ was up 2.77%.[2] International stocks in the MSCI EAFE also rose, gaining 1.45%.[3]
Similar to recent weeks, international events continued to sway markets: Concerns about trade disputes affected investor behavior. Meanwhile, escalating conflict in Syria may have weighed on people's minds.[4]

As we track these developments, we want to share insight about another important occurrence from last week: the beginning of corporate earnings season.

1st Quarter Corporate Earnings Season

1. Expectations remain very high
Analysts anticipate a particularly strong earnings season. Thomson Reuters data predicts that S&P 500 companies' profits were 18.6% higher in the 1st quarter of 2018 than in 2017. If accurate, this increase would be the largest since 2011.[5]

So far, data seems on track. According to The Earnings Scout, 1st-quarter earnings growth is currently at 26.8%.[6]

2. Banks outperform but stocks drop
On Friday, 3 major banks released their reports - and each beat projections for earnings and revenue. Despite this positive news, however, their stocks experienced sizable declines that contributed to overall market losses.

Why would strong quarterly results create stocks losses?

The markets anticipated this positive performance and had already priced it into the shares.[7] As a result, any less-than-ideal news seemed to outweigh the expected earnings and revenue increases. In particular, 2 facts drove losses:[8]
  • 1 bank may have to pay a $1 billion penalty
  • All 3 banks experienced slow loan growth
We are in the early stages of earnings season, and many major corporations still need to release their reports. In the coming weeks, we'll continue monitoring these developments to better understand our economy. As always, please contact us if you have questions about how the data affects your finances and life.  

Monday: Retail Sales, Housing Market Index
Tuesday: Housing Starts, Industrial Production
Thursday: Jobless Claims

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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