The S&P 500 is poised for double-digit earnings growth in the first quarter. Earnings season gets underway this week and corporate America is poised to show a strong increase in its bottom line. The S&P 500 appears likely to produce double-digit year-over-year earnings growth for the first quarter, powered by energy’s rebound from the oil downturn that battered the sector early last year. Last year’s first quarter marked the trough of the earnings recession as S&P 500 earnings fell 5%, setting up an easy comparison for the first quarter of 2017 [Figure 1]. This week we preview the upcoming earnings season.
April 2017 is a busy month, with several potentially market-moving global events to monitor closely. 2017 has seen global equity prices soar to new highs, with the S&P 500 Index up 5.5% in the first quarter, the best performance to start a year since 2013. Additionally, it has been one of the least volatile quarters ever across most asset classes as measured by daily standard deviation of returns; but as we’ve seen over the past few years, this can change quickly. As we turn the page to April, it is important to stay on top of the significant happenings coming up. To help, we’ve created this guide to the April 2017 market calendar, providing an overview of key events.
Checking in on some “Trump trades.” The election outcome and resulting expectations for fiscal policy have caused several shifts in market leadership toward areas most sensitive to these policies. Policy is not the only factor to consider when evaluating these investments, but it is a very important one. Here we discuss some of these so-called “Trump trades,” including small cap stocks and the financials and industrials sectors.
Movement of the U.S. dollar (“dollar”) is one of the primary drivers that determine the relative performance of U.S. and international investments. Over the five-year period ending February 28, 2017, the difference between international returns expressed in dollars vs. local currency was about 4.5% annually. In other words, dollar strength caused international equity investments to underperform by approximately 4.5% annually. This means the effective yearly return for a European investor was 4.5% higher assuming that investor did not convert his or her holdings back into dollars. Many factors influence currencies, some primary, others secondary. The resulting interactions remind us of a river. The primary direction of currency movements is the main flow of the river, determined by large forces such as major macroeconomic and monetary policies. Yet there are times when the currency markets run against what should be their longer term direction; they are like eddies in a river, places where the water runs, at least temporarily, against the river’s ultimate direction. This week we look at longer- and near-term factors influencing the U.S. dollar and by extension the desirability of international investments.
The NCAA College Basketball Final Four is set. Gonzaga, North Carolina, Oregon, and South Carolina are headed to Phoenix, Arizona to determine this year’s college basketball national champion. In that spirit, following our “Sweet 16” commentary last week, this week we share our “Final Four Factors” for the stock market in 2017: 1) economic growth, 2) earnings, 3) corporate tax reform, and 4) the Federal Reserve (Fed). We expect a hard-fought battle between these factors and market risks, including a policy mistake from a government or central bank, trade protectionism, and geopolitics.
Since FDR first popularized the concept at the start of his first term in 1933, the first 100 days of a president’s term is often seen as a benchmark date for early accomplishments that set the tone for the presidency. …
The “Sweet 16” is set. So in the spirit of March Madness and an exciting NCAA college basketball tournament that has already brought us two shockers in second round exits by Duke and Villanova, we have compiled our “Sweet 16” for the stock market. Specifically, we have identified 16 keys — many of them policy related — for stocks for the remainder of the year [Figure 1] and assessed their implications for the market. While the path for several policy-related areas is uncertain, we still expect a solid year for stocks in 2017 — potentially even slightly above our year-end S&P 500 target of mid-single-digit gains,* depending on that policy path. Look for a deeper dive into some of these market drivers in our “Final Four” next week.