AT A CROSSROADS - Third-quarter Bulls vs. Bears fight
After this year's first-quarter market come back, the never-ending tug of war between bulls and bears continues. Since April 2019, the U.S. financial markets have been fluctuating in a tight range of +/- 4%.
The recent international political conflicts (Trade, Brexit, and Wars) have captivated investors' short attention span during the last summer. As we shared in our previous newsletter, many of these events seem to have found a light at the end of the tunnel. So it is time to focus on company fundamentals.
We reach the third quarter earning period for U.S. companies in the S&P 500 index. The financial analyst consensus for this third quarter is low and conservative; They expect the aggregated S&P 500 index third-quarter earnings to report -2% to -1% change, and +2% to 3% in revenues compared to the same quarter last year. Any excess over this easy targets will be a bullish sign to markets.
Until last Friday, about 15% or 75 U.S. companies have reported financial results. The financial results so far are better than analysts feared. Health Care and Financial companies had a particularly strong quarter, while Energy companies dragged market averages down.
The healthy U.S. consumer responsible for more than two-thirds of the U.S. economy has kept those domestic focus U.S. companies isolated from international tensions. While those more cyclical and internationally exposed sectors may struggle for the time being, like Energy, Industrial, and Technology companies.
Next week will be very busy; a quarter of the companies included in the S&P 500 index will report. By this Friday, we will know the results of 40% of the companies in the index. These reports will undoubtedly provide ample information to assess next quarter expected market performance.
Last week, the Standard and Poors 500 market index was up +0.28%. The emerging markets equity and the rest of the developed markets equity indexes ended up +0.7% (using IEMG) and +0.9% (using VEA). The U.S. oil price WTI closed at 53.7 USD per barrel last week. The gold price ended the week at 1,493 USD per ounce.
We will be waiting for the next meeting of the Federal Reserve on October 29th and 30th. The financial markets expect a third rate cut of this year with a more than 90% probability. The lower interest rates may add up to the hopes of the Bulls and support further market risk-taking behavior. Stay tuned.
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Have a productive week!