HAS THE EARNINGS RECESSION UNEXPECTEDLY ENDED?

About a week ago following the release of Alcoa’s disappointing earnings most had pronounced the current profit season as an utter disaster.  One week later, most are stating the opposite.  Results are now expected to rise about 0.6%, ending five consecutive quarters of decline.  Revenues are expected to increase around 2% according to Bloomberg.

Why the radical shift stating the earnings’ recession has ended?  Of the 80 S & P 500 companies that have thus posted results, 83% have exceeded dumbed down expectations.

Many times I have commented about the undue influence social media and the 24 hour news cycle that fosters unfounded conclusions have upon the markets.  There is no attribution on most posts, writing for a specific purpose of conclusion.

Moreover with the markets now dominated by high frequency trading where speed is the utmost of importance over substance, where there are a gazillion examples of shooting first and then maybe later asking questions.

Will this change?

I don’t know.

What I do think is significant is a loud minority of participants are beginning to echo my long held fear about ETFs, stating few understand their composition, ETFs are only comprised of derivatives and futures, fostering the unfounded belief past performance is indicative of future performance with the big getting bigger and small getting smaller.

All of the above creates a very imbalanced and illiquid market. As noted several times, I believe the proliferation of these investment vehicles amounting to more than the number of listed companies, has the potential to make the fiasco in CDOs, CMOs, etc. as a picnic.

Wow do I hope that I am wrong in this observation.  However in my thirty years of experience I have not observed the proliferation of bulge bracket firms suggesting the averages could easily decline between 10% and 25% in quick order because of cross correlated technology based trading.

Completely changing topics, what will be the impact of the Philippines denouncing its 80 year alliance/friendship with the US and is now a Chinese ally?  How will this impact global trade and the multipolarity/interdependence philosophy that many of political elite and establishment has championed?   Is such a “separation” a harbinger of things to come or will it be just a footnote?

As written many times, 55% of S & P 500 earnings and 50% of its revenues is from global trade.  If multipolarity/interdependence is over, how will such impact valuations and subsequently ETFs where megacapitalized growth issues dominate such vehicles?

There is little I can write about yesterday’s market action.  Equities were quietly and Treasuries essentially unchanged.

Last night the foreign markets were mixed.  London was up 0.24%, Paris down 0.22%, and Frankfurt down 0.08%.  China was up 0.21%, Japan down 0.30%  and Hang Sang up 0.30%.

The Dow should open moderately lower on a reassessment of earnings releases.  Consensus now thinking projects will decline by 1.40% for the period.  Interest rates are also at the center. The 10-year is unchanged at a 1.75% yield.

1.77%.

 

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.
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