As of April 30, 2019
Earnings: And the “Beats” Go On
After several months of downward earnings revisions and fears of an earnings recession in the U.S., companies are beating lowered expectations this earnings season. The better-than-expected earningsper-share growth has been supported by slightly better revenue growth, stable margins, and share buybacks. Having seemingly avoided an earnings recession, U.S. equities are sharply outperforming the rest of the world again, with both large-cap and small-cap stocks recording their largest four-month gain since December 2010. With equity prices up more than 15% year-to-date and full-year earnings growth expectations at less than 5%, the market may have gotten a bit ahead of itself.
U.S.: Extending the Cycle
U.S. gross domestic product (GDP) grew 3.2% year over year in the first quarter, extending the current expansion and tying the record from the 1990s, which had been the longest in history. Growth was surprisingly strong in a quarter that featured a government shutdown and severe winter weather. While the current cycle has been durable, it has also been relatively modest from a cumulative growth perspective. However, the recent strength suggests that the cycle may have more room to run with a strong U.S. consumer, stabilizing Chinese growth, and a potential trade deal in the works. The resilience in growth has not been isolated to the U.S., as recent Chinese data and the eurozone’s first-quarter GDP also surprised to the upside. Though long in tenure, we are reminded that cycles don’t die of old age alone.
Idiosyncratic Risks Rising, Again
While much of the focus in emerging markets has been on the growth trajectory in China, a growing number of hot spots have emerged among some of the large debt issuers once again. The situation in Venezuela continues to deteriorate. Argentina remains in a deep economic recession, prompting the nation’s central bank to take further action to stabilize the currency. Turkey suffered its first recession in a decade amid political uncertainty and an unconventional central bank. While emerging markets bond yields remain attractive and broadly supported by positive fundamentals, the recent rise in idiosyncratic risks bears watching.
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Certain numbers in this report may not equal stated totals due to rounding.
Source: Unless otherwise stated, all market data are sourced from FactSet. Financial data and analytics provider FactSet. Copyright 2019 FactSet. All Rights Reserved.
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