Market Resilience Despite Real Growth Earnings Pressure

Once again, the market this week was all about corporate earnings.

Indeed, it was the busiest week for earnings this quarter. And while next week also will feature some key reports, this week gave the bulls what they needed.

And what markets needed was for earnings to come in at least “not as bad as feared,” and earnings so far have been just that. High-profile earnings that outperformed expectations this week included Amazon.com, Facebook and Microsoft. Earnings misses this week included 3M, Caterpillar and Exxon Mobil.

Now, you may have recognized that each of the earnings misses this week also happen to be core holdings in our Income Multipliers portfolio. And while we did see some selling in each of these stocks this week, with the biggest decline in 3M, each stock remains in the black year to date, with CAT up nearly 9% and XOM higher by almost 17% in 2019. I’ll have more details on the earnings picture in our next monthly Intelligence Report newsletter issue.

Interestingly, these high-tech, “new economy” earnings were more robust than companies that are traditionally tied to “real” economic growth or “old economy” stocks. Yet importantly, there wasn’t any one key factor or common theme that contributed to the decline in earnings in many industrial companies. That’s good, because it implies there isn’t a more systemic problem with these industries.

Still, as of today, it’s probably safe to say that we aren’t going to suffer an earnings-prompted sell-off of any major proportion. And while earnings have been mixed this season, they are certainly far better than feared — and that’s good enough to keep fueling this rally.

So, what will move markets next? In the near term, there are two main catalysts to watch: a U.S.-China trade deal and, of course, the ever-present Federal Reserve.

A U.S.-China deal getting done is mostly priced into stocks here, so don’t look for a big move in markets on any kind of trade deal announcement. What really matters is the disposition of the tariffs.

If we see a complete and immediate lifting of all tariffs, that would be very bullish. Most likely, there will be some residual tariffs left in place to ensure compliance with the terms of the deal. If that’s the case, it won’t be a huge bullish catalyst.

As for the Fed, here we are looking more toward its stance on inflation. There has been some chatter about the Fed potentially changing its inflation target from a 2% ceiling to a 2% average.

If that kind of general policy shift takes place, it will be very dovish, as the Fed could let inflation rise well beyond 2% before hiking interest rates again.

This situation would be good for risk assets such as stocks, gold, commodities in general and hard assets; however, it would be bad for bonds and cash. I’ll have more on this development as the Fed begins to signal its intentions, and that could come as soon as next week’s Federal Open Market Committee meeting, so stay tuned.

Finally, this week I was the featured guest on the quarterly webinar “ON THE MOVE.” This webinar series was hosted by my friend and precious metals expert Rich Checkan of Asset Strategies International (ASI), and market analyst extraordinaire Chris Blasi.

During this webinar, the three of us had an in-depth discussion of the current socialism vs. capitalism debate and the implications of that debate for our country and for our money. We also discussed the current market milieu, including earnings season, the future of equities, the U.S. dollar, the future of gold prices and many other important topics. If you want to watch a replay of this event, simply click here.

Also, if you’ve been thinking about owning gold and precious metals, Rich is the man to guide you. In fact, he’s my “go to precious metals’ expert.” So, if you are looking to invest in physical gold or other precious metals, I highly recommend a discussion with Rich. He and his team at Asset Strategies International can be reached at infoasi@assetstrategies.com, or via phone at 800-831-0007. And to sign up for ASI’s free newsletter, which I also strongly recommend, click here.

In the name of the best within us,

Jim Woods

Editor

Intelligence Report