SEPTEMBER BULLS - Bulls taking control back in September
The S&P 500 market index started with a healthy jump of +2.5% in September to reach 2,978 and stands now at 1.6% from this year peak of 3,025 (July 26th).
Bulls took control all week after a stream of positive news inspire them: a new U.S. and China trade meeting in October, a dovish speech in Zurich from Federal Reserve Chairman and an average but consistent U.S. job report last Friday.
As long as the U.S.-China trade negotiation avoid further escalations, and investors believe there will be a light at the end of the tunnel, the financial market may behave under a stable equilibrium in the short term. If there are significant changes to these assumptions or the conflict last a considerable time, market conditions may change with a simple tweet.
The CME Fedwatch tool (Chicago Mercantile Exchange), imply a 91.2% chance of another rate cut of 25 bps (-0.25%) by September 18th. The latest Federal Reserve Chairman speech seems to confirm these estimates. The inverted treasury yield curve may force the Fed to act to steep it.
Latest Friday August U.S. job report did not meet analyst expectation of 160,000 jobs, but 130,000 jobs reported (96,000 private jobs) was enough for investors to dispel immediate concerns.
The U.S. economy is not creating jobs at last year relentless pace of more than +200,000 per month, but it remains stable. If the U.S. economy keeps the job creation rate stable, it may be enough to sustain enough economic growth going forward.
Last Friday, John Butters from Factset published an interesting report about the earning and revenues estimates for Q3 for S&P 500 market index companies. Based on analysts forecasts for Q3 revenue and earnings, there is a sharp contrast between the expected results of U.S. companies with higher international sales exposure (>50%) and those companies with lower international sales exposure (<50%).
This study estimates the growth of +4.7% revenues and +0.4% on earnings for companies with lower international sales exposure (<50%) and a -1.7% impact on sales and -10.7% on earnings for companies with higher international sales exposure (>50%).
These estimates do not account for adjustment of the actual results beating these estimates, as usually happens. As a reference, according to my calculations, 38% of the aggregated revenue of the S&P 500 market index companies comes from abroad.
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Have a nice week!
- Michele López