Things are going to get interesting in the stock market in the next three months. Earnings season is now beginning, giving investors the perfect opportunity to review portfolios and picks for the next quarter.
While earnings are expected to be down year over year, most analysts believe that the current market rally will continue. The economy is still strong and recession fears may have been overblown.
Here are the biggest talking points to keep in mind ahead of earnings season.
1) The Trade Situation is Improving
The war of tariffs between China and the United States is likely ending. Washington insiders believe that a new trade deal is 90% done, and that a signing ceremony will take place in the coming weeks or months.
The latest round of negotiations was the most positive yet, with meetings held in both Beijing and Washington D.C. over a two-week period.
2) A Recession is Unlikely
Recession fears were high throughout 2018. Top economists and the Federal Reserve warned that a slowing economy could lead to a full-blown recession within the next five years.
Jobs and industry growth data from April should reassure investors that a recession is a long way off.
- Unemployment hit a 50-year low at 3.8%.
- Total nonfarm employment was up 1.7% year over year for March, beating expectations.
- The U.S. manufacturing industry expanded in March. This is the 119th month of continued manufacturing growth.
3) First Quarter Earnings Season Declines Should be Temporary
Year over year earnings could be down as much as 4% across the top 500 stocks. However, the reversal in growth shouldn’t last too long. Q1 earnings were inflated last year due to the reduction in corporate taxes from 35% to 21%.
Investors should prepare for lower earnings this season, but growth should normalize in the following quarters.
4) Interest Rates Should Remain Stable
The average wage rate has increased by 3.2%, slightly below the expectation of 3.4%. Inflation concerns are currently nonexistent. This should keep interest rates stable throughout the remainder of this year. The Federal Reserve has already indicated that it expects no rate hikes in 2019.
Earnings Season A Great Time to Be a Stock Market Investor
The stock market has had one of its best openings in years, despite economic concerns. The S&P 500 has grown 15.51% since January 1. The NASDAQ has performed even better, growing 19.87% year to date, thanks to rallying tech stocks.
Any volatility that surrounds earnings season could even be an opportunity, with some top-rated stocks potentially becoming more affordable in the short-term.
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