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Weekly eLetter 10/18/2019 – Q3 Earnings Season: So Far, So Good

Down at the corner of Wall and Broad Streets, nothing succeeds like success. That is especially true when companies turn in a better than expected performance. Wall Street hates surprises; unless of course they’re good surprises.

This week marks the beginning of the Fall Earnings Season and a whole slew of publicly traded companies are reporting results for the 3rd quarter. The anticipation on the street was not terribly good.

Indeed, FactSet — who keeps tabs on such things – had set expectations for a decline of 4.1% in comparison to the same quarter a year ago. As you might have guessed, fears of negative impact from the still ongoing US/China trade ‘discussions’ have some people thinking that in the middle of every silver lining lies a very dark cloud. And yet, in spite of an extra serving of challenges we find some surprisingly good numbers, to wit; of the 43 S&P 500 companies who reported earnings before the opening bell on Thursday, a remarkable 86% have come in with better than consensus expectations.

Speaking of ‘Better than expected’ things (which are much better than “Not-as-bad-as-we-thought” things); the just released Fed Beige Book has a few noteworthy items. For instance:

  • September: “On balance, reports from Federal Reserve Districts suggested that the economy expanded at a modest pace through the end of August.”
  • October: “The US economy expanded at a slight to modest pace since the prior report as business activity varied across the country.”
  • October: “Labor markets remain tight.” “…stronger employment growth continued to be constrained by tight labor markets, with Districts citing shortages of both high- and low-skill workers.
  • “The overall Beige Book sentiment has softened but does not signal a dramatic decline in business activity.”

Meanwhile, across the pond:

Germany also turned in some ‘not as bad as we thought’ news with their ZEW survey. That’s a monitoring tool similar to our ISM Purchasing Manager’s Index. While still negative it came in at a -22 when a -27 had been expected.

Brexit: EU and UK announced an agreement (in general principle) on a deal that would save the UK from leaving the EU under conditions that was feared to generate complete chaos. Although markets on both sides of the Atlantic expressed relief this agreement is not yet a done deal. EU leaders have approved it as well as have most of their UK counterparts so this is good news in the sense that it is definitely a new high-water mark. However, UK and EU parliaments must yet vote and the UK may face hard opposition from their Democratic Unionist Party.

It is often said that the devil is in the details. True, of course. But then, so are the angels.

– Read More…