Market Commentary

Making Cents of the Markets

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A lot of earnings, and a lot of economic data this week. Earnings on the whole have been strong so far with next week being another one of the busier earnings reporting. The latest economic data has been more positive, as China topped expectations for the first quarter with 6.4% annualized growth. The strong consumer in the US continues to impress, with retail sales numbers having their strongest showing in one and a half years, and unemployment claims at a 50 year low. Remember, expectations were that Q1 would be the weakest quarter for the year, and only a few months ago the estimate on first quarter growth was 1% or less in the US. This was due to several winter storms and the government shutdown negatively affecting expectations. However, a lot has changed in a short period of time. With recession concerns fading into the background, economists now expect a print of around 2.4% annualized growth for the quarter when results come out next Friday.

With markets closed tomorrow for the Good Friday holiday, next week will be busy. We will get a flood of corporate earnings, along with a couple of central bank decisions, and more economic readings. Big names reporting include Microsoft, Amazon, Facebook, ExxonMobil, Visa, CP Rail, Caterpillar, Verizon, AT&T, Pfizer, among others. The Bank of Canada meets Wednesday, and while no one expects a change in interest rates, we are looking for clues into just how long they look to remain on the sidelines. The Bank of Japan also meets on Thursday with no major moves expected.

Our Strategy

The general earnings trend is strong so far, as results are beating by about 6.1% with around 80% of companies exceeding their bottom line estimates, according to Credit Suisse. This compares to an average of 5.4% and 71% over the last few years. It is still early, but the consensus forecast for negative earnings is fading, and applying the typical earnings beat rate for the remainder of the season will leave the S&P 500 with 2.5% earnings growth. We should get a firmer idea if the trend is solid next week.

We made a couple of changes in the portfolios this week, as we lightened up on healthcare. The Medicare-For-All push in the US is putting pressure on the healthcare sector, which is now negative on the year despite the overall market rally. That both the Democrats and Republicans have healthcare as a political punching bag going into the 2020 election year has led us to lighten up on the sector, and we may continue to do so after earnings season. The disconnect between fundamentals and political noise was exemplified by a company we have held and profited from for years, and that we sold prior to earnings this week – UnitedHealth Corporation. They beat handily on earnings with double-digit growth, had revenues come in well above consensus estimates, and guided 2019 earnings higher than the street. The shares closed down 4% on the release which, for the record, is not the reaction you would expect on a triple beat and blowout quarter!

Chart of the Week 

Retail sales surged 1.6% in March for one of their best monthly readings since the financial crisis and strongest since September 2017, with auto sales particularly strong in the month:

Beyond the Markets

With Easter coming up this weekend, the Lower Mainland has no shortage of Easter-themed events taking place, including the popular Easterfest which will be on from April 19 to 22 at Taves Family Farms in Abbotsford! There will be plenty of activities including an egg hunt in the apple orchard, fresh cider samples, hay rides down the Bunny Trail, and a petting barn. Or if you prefer more adult-friendly activities, check out the their Adult Easter Egg Hunt on April 20 at 6:00pm which will feature food trucks,  local beer and wine, music, and egg hunts.

Click here to learn more.

Have a great long weekend!

Listen to this week’s Making Cents of the Markets on CKNW. In it you’ll hear from one of Raymond James’ Senior Estate Planning Advisors, Cindy David, who we work closely with as she discusses what to consider when and after selling a business. Listen here.

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