• Michele Lopez

MIND THE GAP – Equity prices way up but future corporate earnings way down

It is official now; the S&P 500 market index broke its record of 3,025 to reach 3,093 last Friday, November 8th, 2019. So far this year 2019, the index has accumulated +23% year to date.


If we compare its performance of S&P 500 with its 2018 highest point of 2,929 on September 17th, 2018, the S&P 500 will be up just +6.15%, which is very close to the long term yearly average return of the index.


A quick update of the third-quarter financial reports of 2019, according to FactSet article from John Butters, about 89% of S&P 500 U.S. companies have reported Q3 2019 results, on aggregated companies' revenues grew +3.2%, and earnings shrink (-2.4%) year over year vs. Q3 2018. It is not exactly a quarter to cheer on.


The analyst has already cut estimates revenues and earnings for the next Q4 2019, and they expect another negative quarter; if this happens, it will be the fourth quarter of negative earnings growth in a row. The 2020 earnings estimates of the S&P 500 index for Q1 2020 and Q2 2020 were lowered to a single-digit earnings growth ( ~5% and-7%), definitely a brighter outlook than 2019, but these estimates may continue to be adjusted.


As Mr. Ray Dalio, the famous Bridgewater Hedge Fund manager, just recently explained, “we are in pushing on a string dynamic, as every asset price goes way up the future expected returns go way down, while economic growth and inflation remain sluggish.”


The expected resolution to the U.S. – China trade dispute, the possible definition of Brexit, and the unwavering support of U.S., Europe, and Japan central banks have raised market psychology to push the market rally higher.


Nowadays, investors believe 2020 will look better than 2019, and that we may be in an inflection point toward new earning growth cycle. In spite of the fact that most recent economic indicators in Europe and Asia are weak, and U.S. economic indicators have a slowdown in the last quarters but are still growing.



The investors have to “Mind the Gap” between equity market ever higher prices and companies slower growth, the risks of those pricey assets have increased considerably. So what should be the behavior of a rational investor? How investors can maximize profits and minimize risks?. Those are the questions investors should ask, and more when conditions are worsening.


Meanwhile, it is healthy to carefully review your exposure to the different asset classes and re balance accordingly to keep your strategy in line with your risks and long term investment plan. You may reach me at any time.

Last week - November 4th to 8th, the Standard and Poor’s 500 market index was up +0.51%. The emerging markets' equity ended down -0.44% (using IEMG), and the developed markets equity indexes up +0.20% (using VEA). The U.S. oil price WTI closed at 56.9 USD per barrel last week. The gold price ended the week at 1,464 USD per ounce.


For more information, questions or to review your portfolio, reach me at

michele.lopez@mellig.us or +1-786-953-0475 (Whatsapp)

Instagram: mr_mklopez

Have a productive week!

Michele López

COMPANY

SERVICES

GET CONNECTED

LOCATIONS

8350 Ashlane Way,

The Woodlands, Texas 77382

+1.832.742.6976

400 University Dr., Suite 400

Coral Gables, Florida 33134

+1.305.393.8474

  • LinkedIn Social Icon
  • Facebook
  • Twitter
  • Instagram

LEGAL DISCLAIMER

MELLIG GROUP, LLC. 

It is a registered investment adviser (RIA) in the states of Texas and Florida. Information presented in this web page is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and tax professional before implementing any strategy discussed herein. This site is designed for U.S. residents only. The services offered within this site are available exclusively through our U.S. financial advisors. Mellig Group' U.S. financial advisors may only conduct business with residents of the states for which they are properly registered.

INTERACTIVE BROKERS, LLC
It is a member NYSE - FINRA - SIPC and regulated by the US Securities and Exchange Commission and the Commodity Futures Trading Commission. Interactive Brokers does not endorse, nor recommend, independent financial advisors, nor hedge funds including Mellig Group, LLC. Interactive Brokers provides execution and clearing services to its clients 

Copyright © 2017 Mellig Group, LLC.  All Rights Reserved. - Legal Disclaimer