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447 S&P 500 members (about 90%) reported results as of Friday, Nov. 8. 72.5% have beaten EPS estimates. Only 57.9% beat revenue estimates.
A low Q3 revenue beat number (57.8%) is worrisome!
Over the last 12 quarters, Zacks Research Director Sheraz Mian says quarterly revenue beats have been as high as 75.4% in Q1-18 and as low as 48.3% in Q3-15.
Total earnings (aggregate net income) for the 447 companies is down -1.5% y/y. This comes with +4.2% higher revenues. The latter amounts to an approximation of trend U.S. macro performance: In other words, +2.2% real GDP growth and +2.0% consumer inflation.
Next are Reuters’ five world market themes for the Global Week Ahead.
(1) Do Risk-Free Rates Stay at Zero Much Longer?
Few people will be brave enough to call the end of the 30-year bond bull run, but the idea that sub-zero borrowing costs may not be around forever is one people are increasingly willing to entertain.
Upbeat economic data, signs of a trade war truce and above all, central banks’ clear reluctance to cut interest rates further have shrunk the global negative-yield bond pool to $12.5 trillion from $17 trillion two months ago.
In Europe, Germany’s long-dated government borrowing costs rose above 0% recently, while 10-year yields are up 50 basis points from early-September lows. Finnish, Belgian and Austrian 10-year yields are also flirting with the zero mark.
But are we just seeing another ‘bond tantrum’ that will soon peter out, like for instance the Bund selloff in April 2015? It’s true that sub-target inflation and deeply negative interest rates in the Eurozone, Japan and elsewhere mean negative yields won’t vanish anytime soon. Above all, some governments, such as Germany, still oppose increasing state spending to boost growth.
So, money managers will be wary of slashing bond exposure. They will be aware, though, that at such low yields, even small moves up will send bond prices crashing, risking big losses on their portfolios. Several countries, from Germany to Japan, will release third-quarter growth data in coming days — a robust set of figures could push yields further toward zero.
(2) Where Is Consumer Price Inflation?
The Fed lowered interest rates a third time on Oct. 30, even with the economy plugging along in OK shape. So what gives? The real concern is inflation — too little, not too much!
The string of quarter-point insurance cuts comes amid concerns about a global slowdown spilling over, and is meant to counter low inflation, which keeps rates down and reduces the Fed’s ability to fight the next downturn. Underneath it all lurks the specter of disinflation, or demand-crushing Japan-style deflation.
Wednesday brings October’s Consumer Price Index (CPI), followed by Fed Chair Jerome Powell’s appearance before the congressional joint economic committee. Core year-on-year CPI is expected at 2.4% and headline at 1.7%. But the Fed’s favorite measure of core personal consumption expenditures is running around 1.6% — hovering mostly below the 2% target since prior to the financial crisis.
The Fed signaled it may wait into 2020 to cut again. Chicago Fed President Charles Evans said rising inflation expectations are key. It looks like an uphill battle given that consumer inflation expectations are declining even though wages are ticking up.
On Friday, October retail sales and industrial production data will shed light on whether the consumer can continue to drive growth in the face of a struggling manufacturing sector and months of trade tensions.
(3) Keep an Eye Out for the Usual Trade Headlines
A raft of global investors at the Reuters 2020 Investment Outlook Summit declared unwavering keenness to stay invested in a market that has done extremely well in 2019 and is expected to do just as well in the coming year.
Adding to that enthusiasm among business and investors are news headlines on gradual progress toward some sort of U.S.-China trade truce. But details remain scarce and, in fact, there isn’t much to cheer in China this month.
Last weekend brought to a close the annual China International Import Expo in Shanghai, where American companies turned out in force.
October is seasonally weak because of the long Chinese National Day holiday, and recent data showed the trade war continues to take a toll on exports and demand. China’s economic growth has slipped to its weakest in three decades, forcing the central bank to make its first rate cut in nearly three years and pump cash into markets.
Key data on lending, investment and inflation are due in coming days. Even as the hubbub over another regional bank run fades, investors expect to see proof that bank lending and social financing deteriorated further, inflation remained high on rising pork prices and investment in factories was depressed.
(4) The 11th BRICS Summit on Tuesday in Brazil
Leaders of Brazil, Russia, India, China and South Africa meet in Brasilia for their 11th summit on Tuesday.
Accounting for a third of world GDP, this bloc has evolved into a political organization, which also has its own development bank.
It’s been a long road since Goldman Sachs’ analyst Jim O’Neill coined the term BRIC in 2001 to describe a grouping of the four biggest emerging markets. The term has evolved from a catchy acronym to an investment concept spawning dozens of funds managing around $25 billion at their peak. Most BRIC funds have since quietly closed, but the countries themselves have adopted the grouping — only it’s BRICS now, with the addition of South Africa.
Times are tough, however. China is mired in a trade war that’s damaging its export-reliant economy and India’s credit rating has been cut by Moody’s on worries about growth and the banking sector. Russia’s economy is semi-stagnant, under U.S. sanctions and locking horns with Turkey for domination of the Middle East. Brazil, just emerging from a brutal recession, is struggling to pass vital reforms. South Africa, with anemic growth, risks losing its investment-grade credit rating, cutting access to precious investment.
The upcoming summit is to focus on “economic growth for an innovative future.” Given all the problems the quintet face, innovation may be key.
(5) Erdogan Will Meet Trump on Wednesday in DC
Turkey’s President Tayyip Erdogan is heading to Washington for a powwow with his U.S. counterpart, Donald Trump, on Wednesday.
The two have plenty to discuss: Engagement, or disengagement, of Turkish and U.S. forces in northern Syria and related bilateral agreements, as well as Ankara’s purchase of Russia’s S-400 missile defense system, which under U.S. law should trigger sanctions.
Then there is a U.S. court case against state-owned Halkbank over evading sanctions in Iran. Meanwhile, a U.S. House of Representatives’ vote to recognize mass killings of Armenians a century ago as genocide has rankled Ankara.
The two men are said to have a strong bond, according to Turkish sources. The lira — a weathervane for Turkey’s economic outlook but also for the state of its geopolitical relations, especially with Washington — is on track for an 8% tumble in 2019, its seventh straight year in the red.
Those personal ties could prove crucial to Erdogan, who seems adept at managing his relationship with the man at the helm of its largest NATO ally, but may face much more hostility from the U.S. legislative branch.
Zacks #1 Rank Stocks
(A) Dexcom ((DXCM - Free Report) ): This is a $198 Medical Instruments stock with an $18B market cap. The stock traded around $150 for months, up to it latest EPS report a few days ago. I see a predictable F for Zacks Value, but an A for Zacks Growth and an A for Zacks Momentum.
San Diego, CA-based DexCom, Inc. is a medical device company focused on the design, development and commercialization of continuous glucose monitoring systems (CGM). These are for ambulatory use by people with diabetes and by healthcare providers for the treatment of diabetic and non-diabetic patients.
(B) Fortinet ((FTNT - Free Report) ): This is another stock on a roll after a great Q3 EPS report. I see a $96 a share price tag assisting a $16B market cap. The Zacks Value score is F again, with a B for Zacks Growth. This is a major cloud security provider.
(C) Agnico Eagle Mines ((AEM - Free Report) ): This is a $13.8B market mining stock. It trades at around $58 a share right now. Is it time to buy a gold miner? The stock was $40 a share back in late May. I would say you are late to that first and best party. Now, the bull story is about share price consolidating for another leg up.
Key Global Macro
Federal Reserve Chair Powell delivers the annual Economic Outlook before the Joint Economic Committee of the US Congress on Wednesday. He will repeat his messages before the House Budget Committee on Thursday.
On Monday, Mexico’s industrial production should fall again. The annual decline is at -1.3% y/y.
On Tuesday, the Reserve Bank of New Zealand is expected to cut its policy rate again. To 0.75% from 1.0%.
The ZEW investor confidence figures come out for Europe, specifically Germany. A consensus for the current situation at -22 and economic sentiment at -13 say it all.
The ILO unemployment rate for the U.K. should stay at 3.9%. That is nice and low.
On Wednesday, the latest reading on the U.S.CPI could come under mild downward pressure. From +1.7% y/y in September, a combination of base effect shifts, typically soft seasonal influences during October, and gas price changes could push the year-ago rate down to around 1.5–1.6%.
Russia’s GDP growth is out. +1.8% y/y is what is expected.
On Thursday, Banxico is expected to cut its overnight rate by another 25 bps on Thursday (from 7.75% to 7.5%). Mexico is dealing with a combo of weak growth and soft inflation.
Argentina updates us on its horrible consumer inflation figures. They are at +50% y/y now.
Eurozone GDP will get an update. It looks to be another +0.2% print.
The Bank of Canada’s governor delivers an address on “The Fourth Industrial Revolution” in San Francisco.
he central bank of the Philippines should keep its policy rates on hold.
On Friday, U.S. retail sales figures for October will have to rely upon a bounce-back in core sales (ex-autos and gasoline), including higher prices — in order to return into the black. Recall that U.S. retail sales fell 0.3% m/m in September, and were flat ex-autos and gas. The control group that feeds into total consumption was also flat.
Gasoline prices should exert little influence in either direction on the U.S. retail sales data. U.S. vehicle sales, however, fell by almost 4% and should weigh upon the headline number here. Price effects will be informed by the CPI report for October two days prior.
U.S. industrial output for October will be released. This data is expected to decline for a 2nd time in 4 months. It should be down -0.4%. U.S. Capacity Utilization should be 77.1, down from 77.5.
Colombia updates us on Q3 GDP. It could be +3.0% y/y again. This is a country that may be turning a corner.
To conclude, I leave you with Sheraz Mian’s assessment of Q3 earnings season--
We have:
Tough comparisons to last year, when growth was boosted by the tax cut.
Moderating U.S. economic growth, and
Notable slowdowns in other global economic regions, which have a further negative impact.
Uncertainty about the global trade regime, amid a growing use of tariffs, are not helping matters.
It’s a struggle out there to find fresh sources of revenue growth.
Will you retire a millionaire?
One out of every six people retires a multimillionaire. Get smart tips you can do today to become one of them in a new Special Report, “7 Things You Can Do Now to Retire a Multimillionaire.”
Image: Bigstock
A Struggle to Find Revenue Growth: Global Week Ahead
In the Global Week Ahead, a nearly final set of 15 S&P 500 members report Q3 results.
The week’s docket has Wal-Mart (WMT - Free Report) , Cisco (CSCO - Free Report) and Nvidia (NVDA - Free Report) .
447 S&P 500 members (about 90%) reported results as of Friday, Nov. 8. 72.5% have beaten EPS estimates. Only 57.9% beat revenue estimates.
A low Q3 revenue beat number (57.8%) is worrisome!
Over the last 12 quarters, Zacks Research Director Sheraz Mian says quarterly revenue beats have been as high as 75.4% in Q1-18 and as low as 48.3% in Q3-15.
Total earnings (aggregate net income) for the 447 companies is down -1.5% y/y. This comes with +4.2% higher revenues. The latter amounts to an approximation of trend U.S. macro performance: In other words, +2.2% real GDP growth and +2.0% consumer inflation.
Next are Reuters’ five world market themes for the Global Week Ahead.
(1) Do Risk-Free Rates Stay at Zero Much Longer?
Few people will be brave enough to call the end of the 30-year bond bull run, but the idea that sub-zero borrowing costs may not be around forever is one people are increasingly willing to entertain.
Upbeat economic data, signs of a trade war truce and above all, central banks’ clear reluctance to cut interest rates further have shrunk the global negative-yield bond pool to $12.5 trillion from $17 trillion two months ago.
In Europe, Germany’s long-dated government borrowing costs rose above 0% recently, while 10-year yields are up 50 basis points from early-September lows. Finnish, Belgian and Austrian 10-year yields are also flirting with the zero mark.
But are we just seeing another ‘bond tantrum’ that will soon peter out, like for instance the Bund selloff in April 2015? It’s true that sub-target inflation and deeply negative interest rates in the Eurozone, Japan and elsewhere mean negative yields won’t vanish anytime soon. Above all, some governments, such as Germany, still oppose increasing state spending to boost growth.
So, money managers will be wary of slashing bond exposure. They will be aware, though, that at such low yields, even small moves up will send bond prices crashing, risking big losses on their portfolios. Several countries, from Germany to Japan, will release third-quarter growth data in coming days — a robust set of figures could push yields further toward zero.
(2) Where Is Consumer Price Inflation?
The Fed lowered interest rates a third time on Oct. 30, even with the economy plugging along in OK shape. So what gives? The real concern is inflation — too little, not too much!
The string of quarter-point insurance cuts comes amid concerns about a global slowdown spilling over, and is meant to counter low inflation, which keeps rates down and reduces the Fed’s ability to fight the next downturn. Underneath it all lurks the specter of disinflation, or demand-crushing Japan-style deflation.
Wednesday brings October’s Consumer Price Index (CPI), followed by Fed Chair Jerome Powell’s appearance before the congressional joint economic committee. Core year-on-year CPI is expected at 2.4% and headline at 1.7%. But the Fed’s favorite measure of core personal consumption expenditures is running around 1.6% — hovering mostly below the 2% target since prior to the financial crisis.
The Fed signaled it may wait into 2020 to cut again. Chicago Fed President Charles Evans said rising inflation expectations are key. It looks like an uphill battle given that consumer inflation expectations are declining even though wages are ticking up.
On Friday, October retail sales and industrial production data will shed light on whether the consumer can continue to drive growth in the face of a struggling manufacturing sector and months of trade tensions.
(3) Keep an Eye Out for the Usual Trade Headlines
A raft of global investors at the Reuters 2020 Investment Outlook Summit declared unwavering keenness to stay invested in a market that has done extremely well in 2019 and is expected to do just as well in the coming year.
Adding to that enthusiasm among business and investors are news headlines on gradual progress toward some sort of U.S.-China trade truce. But details remain scarce and, in fact, there isn’t much to cheer in China this month.
Last weekend brought to a close the annual China International Import Expo in Shanghai, where American companies turned out in force.
October is seasonally weak because of the long Chinese National Day holiday, and recent data showed the trade war continues to take a toll on exports and demand. China’s economic growth has slipped to its weakest in three decades, forcing the central bank to make its first rate cut in nearly three years and pump cash into markets.
Key data on lending, investment and inflation are due in coming days. Even as the hubbub over another regional bank run fades, investors expect to see proof that bank lending and social financing deteriorated further, inflation remained high on rising pork prices and investment in factories was depressed.
(4) The 11th BRICS Summit on Tuesday in Brazil
Leaders of Brazil, Russia, India, China and South Africa meet in Brasilia for their 11th summit on Tuesday.
Accounting for a third of world GDP, this bloc has evolved into a political organization, which also has its own development bank.
It’s been a long road since Goldman Sachs’ analyst Jim O’Neill coined the term BRIC in 2001 to describe a grouping of the four biggest emerging markets. The term has evolved from a catchy acronym to an investment concept spawning dozens of funds managing around $25 billion at their peak. Most BRIC funds have since quietly closed, but the countries themselves have adopted the grouping — only it’s BRICS now, with the addition of South Africa.
Times are tough, however. China is mired in a trade war that’s damaging its export-reliant economy and India’s credit rating has been cut by Moody’s on worries about growth and the banking sector. Russia’s economy is semi-stagnant, under U.S. sanctions and locking horns with Turkey for domination of the Middle East. Brazil, just emerging from a brutal recession, is struggling to pass vital reforms. South Africa, with anemic growth, risks losing its investment-grade credit rating, cutting access to precious investment.
The upcoming summit is to focus on “economic growth for an innovative future.” Given all the problems the quintet face, innovation may be key.
(5) Erdogan Will Meet Trump on Wednesday in DC
Turkey’s President Tayyip Erdogan is heading to Washington for a powwow with his U.S. counterpart, Donald Trump, on Wednesday.
The two have plenty to discuss: Engagement, or disengagement, of Turkish and U.S. forces in northern Syria and related bilateral agreements, as well as Ankara’s purchase of Russia’s S-400 missile defense system, which under U.S. law should trigger sanctions.
Then there is a U.S. court case against state-owned Halkbank over evading sanctions in Iran. Meanwhile, a U.S. House of Representatives’ vote to recognize mass killings of Armenians a century ago as genocide has rankled Ankara.
The two men are said to have a strong bond, according to Turkish sources. The lira — a weathervane for Turkey’s economic outlook but also for the state of its geopolitical relations, especially with Washington — is on track for an 8% tumble in 2019, its seventh straight year in the red.
Those personal ties could prove crucial to Erdogan, who seems adept at managing his relationship with the man at the helm of its largest NATO ally, but may face much more hostility from the U.S. legislative branch.
Zacks #1 Rank Stocks
(A) Dexcom ((DXCM - Free Report) ): This is a $198 Medical Instruments stock with an $18B market cap. The stock traded around $150 for months, up to it latest EPS report a few days ago. I see a predictable F for Zacks Value, but an A for Zacks Growth and an A for Zacks Momentum.
San Diego, CA-based DexCom, Inc. is a medical device company focused on the design, development and commercialization of continuous glucose monitoring systems (CGM). These are for ambulatory use by people with diabetes and by healthcare providers for the treatment of diabetic and non-diabetic patients.
(B) Fortinet ((FTNT - Free Report) ): This is another stock on a roll after a great Q3 EPS report. I see a $96 a share price tag assisting a $16B market cap. The Zacks Value score is F again, with a B for Zacks Growth. This is a major cloud security provider.
(C) Agnico Eagle Mines ((AEM - Free Report) ): This is a $13.8B market mining stock. It trades at around $58 a share right now. Is it time to buy a gold miner? The stock was $40 a share back in late May. I would say you are late to that first and best party. Now, the bull story is about share price consolidating for another leg up.
Key Global Macro
Federal Reserve Chair Powell delivers the annual Economic Outlook before the Joint Economic Committee of the US Congress on Wednesday. He will repeat his messages before the House Budget Committee on Thursday.
On Monday, Mexico’s industrial production should fall again. The annual decline is at -1.3% y/y.
On Tuesday, the Reserve Bank of New Zealand is expected to cut its policy rate again. To 0.75% from 1.0%.
The ZEW investor confidence figures come out for Europe, specifically Germany. A consensus for the current situation at -22 and economic sentiment at -13 say it all.
The ILO unemployment rate for the U.K. should stay at 3.9%. That is nice and low.
On Wednesday, the latest reading on the U.S. CPI could come under mild downward pressure. From +1.7% y/y in September, a combination of base effect shifts, typically soft seasonal influences during October, and gas price changes could push the year-ago rate down to around 1.5–1.6%.
Russia’s GDP growth is out. +1.8% y/y is what is expected.
On Thursday, Banxico is expected to cut its overnight rate by another 25 bps on Thursday (from 7.75% to 7.5%). Mexico is dealing with a combo of weak growth and soft inflation.
Argentina updates us on its horrible consumer inflation figures. They are at +50% y/y now.
Eurozone GDP will get an update. It looks to be another +0.2% print.
The Bank of Canada’s governor delivers an address on “The Fourth Industrial Revolution” in San Francisco.
he central bank of the Philippines should keep its policy rates on hold.
On Friday, U.S. retail sales figures for October will have to rely upon a bounce-back in core sales (ex-autos and gasoline), including higher prices — in order to return into the black. Recall that U.S. retail sales fell 0.3% m/m in September, and were flat ex-autos and gas. The control group that feeds into total consumption was also flat.
Gasoline prices should exert little influence in either direction on the U.S. retail sales data. U.S. vehicle sales, however, fell by almost 4% and should weigh upon the headline number here. Price effects will be informed by the CPI report for October two days prior.
U.S. industrial output for October will be released. This data is expected to decline for a 2nd time in 4 months. It should be down -0.4%. U.S. Capacity Utilization should be 77.1, down from 77.5.
Colombia updates us on Q3 GDP. It could be +3.0% y/y again. This is a country that may be turning a corner.
To conclude, I leave you with Sheraz Mian’s assessment of Q3 earnings season--
We have:
It’s a struggle out there to find fresh sources of revenue growth.
Will you retire a millionaire?
One out of every six people retires a multimillionaire. Get smart tips you can do today to become one of them in a new Special Report, “7 Things You Can Do Now to Retire a Multimillionaire.”
Click to get it free >>