Embrace the Uncertainty
By John Stoltzfus,
Chief Investment Strategist
Have You Ever Been Experienced?
We quote Jimi Hendrix as experience and continuity at the Fed offer significant value to the market
In the course of our extensive business travels so far this year we have met with many investors in the US as well as with investors in the UK and Europe.
The clients and brokers we have had the pleasure and opportunity to converse with this year so far have asked a variety of questions ranging across a wide brace of topics including questions related to the markets, asset classes, economics, politics, geopolitics and demographic trends.
One of the more frequent questions we hear (and indeed have heard since the start of the economic and market recovery in 2009) is “…since you are positive about the potential for the economy and the markets, what worries you?”
We always try to respond extemporaneously to that question, often including “topics de jour” that are worrying the markets. We give our take from the perspective of investment strategists.
As we write this week’s commentary and reflect on what we’ll call “the universal worry question” we’d consider the following to be on our short list of concerns:
“By the close of last week 421 or a little over 84% of the companies in the S&P 500 had reported results since the start of the earnings season with earnings up 10.11% on the back of 5.41% revenue growth”
Strategic Musings on the Weekend and Ahead:
A sizeable gain in the number of jobs added in July along with a drop in the headline unemployment number (the U- 3) and an uptick in the US workforce participation rate in our opinion provides the equity markets stateside with significant support as the month of August moves into its first full week of trading stateside.
For all the grumbling heard from skeptics and bearish types economic fundamentals persist broadly positive if not at a fast enough pace for the impatient.
The nonfarm payroll number (up 209,000 versus 180,000 expected) along with a downtick on the headline unemployment number (back to 4.3% in July from 4.4% in June) and the labor force participation rate ticking up ever so slightly to 62.9% (as more people entered the workforce than dropped out last month) all contributed to a parcel of good news last week that should offset some earlier concern about sluggishness tied to the service sector and unevenness in some data tied to manufacturing.
On the corporate front earnings as evidenced by the S&P 500’s second quarter reporting season remain commendably positive and ahead of consensus analyst expectations (at around 6%) at the start of the reporting season just a few weeks ago.
By the close of last week 421 or a little over 84% of the companies in the S&P 500 had reported results since the start of the earnings season with earnings up 10.11% on the back of 5.41% revenue growth.
The Energy sector has led the way for another quarter posting triple digit earnings growth as energy company earnings bounced strongly off their lows tied to the decline of oil prices from their last peak of June 22 of 2014.
The energy sector accompanied by information technology, financials, materials and real estate make up the top five sectors in terms of earnings growth for 2Q so far. The only sector to report negative earnings growth has been the utilities sector (see page 5 for details).
In the week ahead the continuation of earnings season along with comments from at least one prominent member of the Fed today (St. Louis Fed President James Bullard) and on Wednesday data reflecting on oil and gasoline inventories (US Energy Information Agency) should keep investors’ attention in focus even as the days of summer and vacation season gather momentum.
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