The recently ended third quarter was the Best Earnings for the S&P 500 companies in almost a decade. This news comes in direct contrast to recent uncertainty and volatility in the market. The stats show that companies on the S&P 500 grew earnings by a total of 25.8% from July to September.
The S&P 500 tracks components like Apple, Microsoft, Amazon.com, and JPMorgan Chase & Co. Some of these stocks are the strongest performers in their respective industries, and account for the majority of all growth on the stock market.
Why Aren’t Investors More Optimistic After Best Earnings Reports?
While investors are definitely aware of the revenue growth of S&P 500 companies, there is uncertainty due to other market factors. Analysts are not fully optimistic that third quarter results will continue throughout the final quarter, and there is also the uncertainty of the U.S./China trade situation that is playing into investor fears.
Although both the U.S. and China have publicly stated that they have recommenced high level trade talks, there is fear that more tariffs could come in the first quarter of 2019 if a new trade agreement is not reached. More tariffs could seriously hurt companies that derive their revenue from China and other key Asian markets. Companies like Intel, Walt Disney, Cisco, Microsoft, IBM, Broadcom, Texas Instruments, and Starbucks could all feel the impact if new tariffs are created.
Tech industries, particularly the chip-making sector, would be hard hit by any further tensions between the world’s two largest trading partners.
A stronger dollar is also causing problems for the market. U.S. companies become less competitive as the dollar rises in value. Rising interest rates have also eroded some confidence.
Investors Should be Prepared for a Potential Correction
Some top-level investors and analysts believe that stocks are overvalued, and a correction is inevitable. The topic is hotly debated and there is no way to predict a market crash with any certainty. Strong fourth quarter earnings could put some confidence back into the market, but we will have to wait until January to see how the situation progresses.
Smart investments, a healthy level of diversification across sectors, and awareness of the latest trends and financial news will all be useful for making investment decisions in the coming weeks.
For now, the markets are relatively stable, after having picked up some momentum on Thursday and Friday of last week. The S&P 500 was up 0.22% on Friday, the Dow Jones Industrial average was up 0.49%, and the NASDAQ slid slightly with -0.15% at the end of trading.
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