Fed holds steady, China wobbles, earnings slide
The Fed surprised investors with its announcement to stay steady and hold rates, while earnings season seems to be heading steadily on a downward trend. Read on to get the details:
The Fed’s Pleasant Surprise – Many Fed and market-watchers did not expect the Federal Reserve to raise interest rates at the recent January meeting – so it wasn’t much of a surprise when Jerome Powell announced the Fed would hold rates steady. What did come as a surprise was the notable shift in tone in the Fed’s comments, sending markets the signal that there’s a real chance of zero rate increases in 2019. In December, the Fed signaled that two rate increases were expected for 2019, but the January statement featured a stark pivot in language, with the Fed citing growing risks of a U.S. economic slowdown due to slowing growth in Europe and Asia, trade disputes, Brexit, and a dragging-on of U.S. government shutdowns. The Fed finds itself in somewhat of a tenuous position now – the U.S. jobs market continues to add jobs well ahead of expectations and the economy continues to expand, but equity markets have been volatile and manufacturing and housing markets have softened. If the Fed is fearful of the downside risks to the economy based on trade disputes and government shutdowns, it is unclear why their position is different today than it was six weeks ago. Either way, the markets cheered the news, as “patience” in raising rates and flexibility about running off the central bank’s balance sheet have lifted prices in the short term.1
While you can’t predict how the news will shape the market, you may be able to better prepare for what’s to come with the right investment strategy.
To help you learn more about strategies that cater to different investment objectives, we have created our Dean’s List of Investment Strategies. Our Dean’s List describes five of our investment strategies that are ranked in the top 7% of their respective classes according to Morningstar (as of 12/31/18).2
If you have $500,000 or more to invest and want to learn about five of our top strategies, click on the link below.
Will China’s Economy Struggle in the Year Ahead? If it feels like an ‘impending slowdown in China’s economy’ has been a top story for the last few years now, it’s because it has. Talks of a “hard landing” date back to the earlier years in the current global expansion, yet China’s economy continues to grow north of 6%. Today’s stories sound like recycled versions of previous concerns, with the featured fears being too much debt, overinvestment, property bubbles, and constraints on private businesses. The slowdown in China is sending shock waves through trading partners around the globe. But 2019 has a different angle for China, as the trade dispute with the United States drags on. Reports indicate that the Chinese delegation plans to offer a big increase in purchases of U.S. farm products and energy, along with modest reforms in industrial policies, but that China plans to push back on U.S. demands for deep structural changes. Any real slowdown in China’s economy is likely to be felt around the world, as China’s share of global output doubled in the past 15 years.4
All Eyes on Earnings Season – Earnings season has kicked into full gear, and the results are notably weaker than what we experienced in 2018 – which was to be expected. Total earnings for the 136 S&P 500 index members that have reported results already are up +12.6% from the same period last year on +5.9% higher revenues, with 69.1% beating EPS estimates and 60.3% beating revenue estimates. This, again, is a notably weaker showing than we have seen from the same group of 136 index members in other recent periods.5 Global growth uncertainty is showing up in lowered earnings estimates for the current and coming quarters, as a result of which the earnings growth trajectory this year is on a steady downtrend, as the chart below shows:
Estimates for Q1 earnings growth has actually turned negative, and estimates for full-year growth have also been on a steady decline. While disconcerting, we believe that investors should also see this as an opening for positive surprises in 2019.
Finding the right investment strategy can make a difference when managing the highs and lows of the market. To help you learn more about strategies that cater to different investment objectives, we have created our Dean’s List of Investment Strategies.6
Our Dean’s List describes five of our investment strategies that are ranked in the top 7% of their respective classes according to Morningstar (as of 12/31/18).7 If you have $500,000 or more to invest and want to learn more about these strategies, click on the link below to see how they could potentially benefit you.
2 These rankings may not be representative of any one client’s experience. In addition, they are not indicative of future performance
3 ZIM may amend or rescind the “Dean’s List of Investment Strategies” guide for any reason and at ZIM’s discretion.
4 The Wall Street Journal. January 31, 2019. https://www.wsj.com/articles/china-slowdown-causes-recoils-in-growth-around-the-globe-11548932400?mod=djem10point
5 Zacks.com, January 29, 2019. https://www.zacks.com/commentary/209588/the-one-big-concern-this-earnings-season
6 These rankings may not be representative of any one client’s experience. In addition, they are not indicative of future performance
7 ZIM may amend or rescind the “Dean’s List of Investment Strategies” guide for any reason and at ZIM’s discretion.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.
Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.
This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.
Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.
Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.
It is not possible to invest directly in an index. Investors pursuing a strategy similar to an index may experience higher or lower returns, which will be reduced by fees and expenses.