Coming Up Milhouse

Coming Up Milhouse

almost 5 years ago3 mins

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👋 Welcome to the Weekly Review for April 20 - April 26.

📈 This week's trend

More than half of US public companies have now reported their first-quarter results, with Europeans firms’ reporting in full swing too. And so far those earnings have largely been better than expected, defying investors’ previous fears.

  • US banks kicked off earnings season by reporting higher profits than predicted. > Read more

  • Last week, Netflix put the afterburners on tech stocks by reporting stronger-than-expected results. > Read more

  • Consumer goods giants PepsiCo, Coca-Cola, Nestlé, and Unilever all reported strong quarters. > Read more

  • This week, investors applauded updates from SAP, Facebook, and Amazon. > Read more

  • But European banks rained on the parade with a swath of disappointing updates. > Read more

At the end of 2018, investors believed interest rates would continue to rise apace, making it more expensive for companies and consumers alike to borrow money. They therefore expected businesses to invest less and consumers to lower their spending, with slowing economic and company earnings growth the result 📉 And analysts’ already conservative forecast for 12% average profit growth at US companies in the first quarter had slipped to expectations of a 4% decline by late March, according to FactSet. But when the US Federal Reserve backtracked and announced an interest rate freeze, all bets were off.

The much lower earnings expectation bar has now been cleared by approximately 80% of US companies reporting so far. And while several have admitted their next-quarter outlooks are somewhat murky, investors have bought up stocks nevertheless – sending the US market to new record highs this week 🥂

One highly vindicated group of investors may be those who backed “defensive” consumer staples companies, which sell essential products people buy even in uncertain times. Thanks to workers’ paychecks rising faster than the average prices of goods (a.k.a. inflation), the likes of Nestlé and Coca-Cola have been able to raise their own products’ price tags without backlash – and successfully introduce new, more expensive items too. That should put them on track for future earnings increases – no matter what the global economy does next.

🤖 Tech appears back in fashion among investors too: FAANG stocks have mostly recouped the losses they sustained in the fourth quarter of last year. And that momentum’s been sustained by strong results this week. While SAP, Microsoft, and Amazon all had their heads in the clouds, however, Intel was brought back down to earth. It lowered its annual forecast after reporting a surprise drop in its sales of data center chips – the very same ones powering those fast-growing cloud computing services, suggesting clients are going elsewhere.

Interest rates could come full circle.The pause on central bank interest rate hikes for 2019, combined with companies subsequently beating investors’ lowered expectations, has pushed stock markets to new highs. And economic data hasn’t been quite as bad as feared – better, in fact, including in China 🇨🇳 But if the US economy continues motoring along, the Federal Reserve could see fit to increase rates earlier than expected – which could resurface the same worries investors had back at Christmastime.

Banksys follow stencils.Major European banks lifted the lid on their first quarters this week – and echoed several of the themes US banks had reported previously. Trading activity was weak across the board, with the exception of Barclays, which grew where others shrank. And investment management was back in fashion, attracting new money. But unlike in the US, European banks may need to merge in order to grow further – and that’s proving hard to do.

Before you go, so let us know what you think of these longer updates.

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