Market Insights

If there is anything that financial media is certainly guilty of, it’s producing too many articles that portend “big things” are just about to happen. It’s usually conveyed right in the title with a sense of either impending doom or riches. Of course, the goal of most articles, whether financial or not, is to get as many people as possible to click on the article. Creating a shocking or intriguing title is certainly a good way to do that. Most of the extreme investment pieces don’t stop at just the title. They meticulously lay out how and why something crazy is going to happen and many will even take a stab at predicting “when” as well. It usually isn’t enough to just lay out the possibility of an inflection point in the market. To really sell it, the author must include the details, because why would someone just imply there will be a market crash when they can predict the market will crash by (insert extreme, arbitrary number and date).

You are heading down the road, without a care, and then you see a sign that reads, “Road Closed due to Political Risk”. Welcome to the markets in 2019.

Some of you may know the popular television show “Deal or No Deal”. The premise of the show is fairly simple, but the drama of the decision makes it exciting. The player chooses one of 26 different briefcases, each containing a marker for various amounts ranging from 1 cent to $1 million. The player then eliminates the remaining cases one by one, revealing the amount inside as the decisions are made. After several possibilities are removed, the “banker” tempts the contestant with an offer to stop playing in exchange for a certain amount. The contestant must choose between accepting the deal or continuing to open cases in hopes of getting a better offer and possibly winning a million dollars. Of course, there is always the chance of going home with 1 cent. The most dramatic part of the show happens when a contestant emphatically announces, NO DEAL! while the audience cheers. Last week, the US and China both declared NO DEAL! Needless to say, the world audience was not cheering.

So far, earnings are showing the first quarterly declines in years while the markets have quietly broken out to new all-time highs. How can bad news bring good markets? For one, volatility has settled down to levels last seen during the summer of 2018 and secondly, the news has not been filled with market-moving headlines. Many investors welcome this as a time to relax while some pundits preach “the end is nigh”. Regardless of one’s view of what is likely to happen next, corporate earnings are the next market moving catalyst on the radar. So far, earnings season has been right in line with what most analysts were expecting. As of April 26th, 46% of companies in the S&P 500 have reported for the current quarter. Of those, 77% have reported a positive earnings surprise while 59% have reported a positive revenue surprise. The blended earnings growth rate is a -2.3% which, if it remains, would mark the first year-over-year decline since Q2 2016. On an absolute basis, these numbers aren’t the type one would expect to drive markets to new all-time highs, but on a relative basis they are better than lowered expectations.

By now, most of you have heard about the horrific fire that took place at Notre Dame Cathedral in Paris, France. Notre Dame de Paris was started in 1160 and was largely complete by 1260, where it has remained a key Parisian landmark for the past 750 years. Miraculously, a large portion of the church was spared in the fire along with many famous Catholic relics. What could have been a complete disaster quickly morphed into a sense of relief for some. While it will still take significant time and resources to restore Notre Dame to its former glory, it’s fair to say things could have been much worse.