Fourth quarter earnings season is about to commence.  According to Goldman, results are expected to increase by the smallest amount in three years, commenting further margin pressure may continue for the foreseeable future for a myriad of reasons.

Goldman additionally writes profits on current production—essentially revenues minus costs—peaked about 5 years ago and any gains have been the result of financial engineering such as stock repurchases, tax policy and the like.   The current level is below those prevailing in 2006 and the draw down is the longest since records began being kept in 1947.  Wow!

Boston Fed President Eric Rosengren commented yesterday the prospect for above target inflation and financial asset bubbles pose a greater risk to his economic outlook in 2020 than the downside threats from trade disputes and sluggish global growth.   Rosengren further stated wage growth may negatively impact corporate earnings as most companies are unable to absorb higher wages.

Rosengren is suggesting growth will not falter but rather the markets may have to readjust to a greater growth and inflation scenario than anticipated.

Some are opining January 2020 can be a carbon copy of January/February 2018.  To refresh, markets were strong in January 2018 only to endure a brutal selloff in early February as the VIX surged on interest rate and monetary policy concerns.  Did Rosengren validate this view?

Bloomberg reports “Big Companies Have Never Dominated the S & P 500 Like They Do Today.”  The top five publically traded companies now make up a record 18% of the S & P 500, eclipsing the tech bubble peak of 2000.

Moreover Morgan Stanley writes “the surge in these behemoths is good news for anyone simply chasing the index higher but the capitalizations of a few are now so lofty the odds of sharp losses are increasing exponentially on any type of externality.”

Morgan Stanley further opines history is typically not good for anyone owning the vastly over owned shares pointing to the 90% implosion of the nifty fifty of the 1970s and the 80% plunge of the NASDAQ in 2000.

Is it different this time or are there just different people?

Commenting briefly upon yesterday’s market action, technology shares rose again as the US is no longer viewing China as a currency manipulator.

Last night the foreign markets were mixed.   London was down 0.04%, Paris down 0.09% and Frankfurt up 0.03%.  China wasdown 0.28%,  Japan up 0.73% and Hang Sang down 0.24%.

The Dow should open moderately lower.  JP Morgan exceeded profit estimates.  The trade deal is signed today and perhaps this could be the proverbial buy on rumor sell on fact scenario that often unfolds.   The 10-year is unchanged at 1.85%.


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