Home About Archives RSS Feed

@theMarket: Earnings Give Mixed Signals

By Bill Schmick
iBerkshires columnist
So far, third-quarter earnings results have been all over the place. A mixed bag of beats, in-line numbers, and some big disappointments have kept the stock market treading water.
 
Companies such as Caterpillar, with large exposure to China, came in with lower than expected results. Boeing, another big Dow stock, also reported a 50 percent slide in earnings thanks to the problems generated by two crashes of their 737 Max aircraft. And yet, both stocks rallied on the news.
 
Semiconductor company Texas Instruments also issued poor earnings, sales, and guidance, but in this case, investors not only punished the stock but trashed the entire semiconductor sector along with it. McDonalds, UPS, Lockheed, Amazon and Travelers Insurance, all mega-cap companies, also cratered on disappointing earnings.
 
To be sure, most of the disappointments were company-specific, so there is little one can glean about the health of the overall economy from the results. The majority of companies, however, are meeting or beating earnings expectations, which is what one should expect in a normal earnings season. Readers should know by now that analysts low-ball earnings estimates early, so that companies can beat Wall Street expectations when they report.
 
This earnings divide, thus far, does give some useful hints to those who are paying attention to the underlying price action. Most industrial stocks, for example, have sat out this year's rally as recession and China trade war fears kept investors away from investing in this area. So why did Caterpillar (CAT) not fall after disappointing earnings this week?
 
I suspect that some investors are betting that we are at the bottom of the economic cycle. While many analysts believe overall earnings for this third quarter will be down an average of 3 percent, they also think that this might be the trough in earnings. Bulls are expecting fourth quarter, and next year's earnings growth, to rebound.
 
If so, then cyclical companies like CAT could present real value. Remember that industrial stocks are economically sensitive. If one looks at past cycles, industrials were usually one of the best performing sectors coming out of a trough one year later.
 
The question to ask is whether this cycle will be similar to the last 11? That, of course, leads us right back to the trade wars and what the Fed may do on the interest rate horizon.
 
Do you bet on Trump caving in and rolling back all the tariffs he has levied thus far, or do you expect him to double down and implement the threatened tariffs he has scheduled for December? Given that most investors are worried about an economic slow-down brought on by an escalating trade war, those who are buying industrial stocks and other cyclical sectors are making a rather ballsy contrarian bet on the future health of the U.S. and global economies.
 
From an overall market perspective, some hesitation here (at less than 1  percent from all-time highs) is understandable. It may have been too much to ask that third quarter earnings would be the catalyst we needed to break out and up to new highs. We also still have a week to go before exiting October, a notoriously volatile month for the markets.
 
But before you despair that stocks will ever breaking out of this two-year trading range, remember the Fed, which meets next week. If they perform in line with investor expectations and cut interest rates yet again, we just might get an excuse for that breakout.
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
 

 

0 Comments
     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
BAAMS Offering Free Online Music Lessons
The Zombie Pig, and Other Tales of Cabbage Stalk Night
Williamstown Panel Discussion Reflects on Area's Original Occupants
Head-On Collision on Curran Highway Leaves Two Injured
Southwestern Vermont Medical Center Restricts Visitors
SBA Seeks Nominations for Committee On Veterans Business Affairs
Berkshire South’s Gala Raised $90,000
Health Connector Open Enrollment Starts Sunday
Pittsfield Behavioral Health Provider Receives Award
DPU Assessing Future of Natural Gas in Massachusetts
 
 


Categories:
@theMarket (347)
Independent Investor (450)
Retired Investor (18)
Archives:
October 2020 (7)
October 2019 (1)
September 2020 (6)
August 2020 (6)
July 2020 (10)
June 2020 (7)
May 2020 (9)
April 2020 (9)
March 2020 (5)
February 2020 (7)
January 2020 (10)
December 2019 (7)
November 2019 (8)
Tags:
Recession Congress Currency Markets Commodities Europe Japan Retirement Europe Crisis Stimulus Jobs Pullback Energy Bailout Euro Metals Rally Debt Banks Wall Street Debt Ceiling Housing Federal Reserve Interest Rates Stocks Selloff Election Deficit Taxes Fiscal Cliff Stock Market Oil Greece Economy
Popular Entries:
The Independent Investor: Don't Fight the Fed
@theMarket: QE II Supports the Markets
The Independent Investor: Understanding the Foreclosure Scandal
@theMarket: Markets Are Going Higher
The Independent Investor: Does Cash Mean Currencies?
The Independent Investor: General Motors — Back to the Future
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: Will the Municipal Bond Massacre Continue?
Recent Entries:
The Retired Investor: Food Faces Escalating Prices
@theMarket: Politicians Play Cat & Mouse With Investors
@theMarket: Investors Reduce Risk as Stimulus Talks Fail
The Retired Investor: China Leads Global Economic Recovery
@theMarket: One way or Another, Markets Expect More Stimulus
The Retired Investor: U.S. Moves to Nail Down Strategic Metals
The Retired Investor: Halloween Could Be the Holiday Test Case
@theMarket: Markets Feel the Heat
The Retired Investor: Back to the Future in America's kitchens
@theMarket: Investors Face a Rollercoaster Ride