Q1 Earnings Season: Thumbs Up or Down?
This week proved to be eventful for tech as Mark Zuckerberg, Founder of Facebook, testified before Congress and Apple achieved its goal of powering operations with 100% renewable energy. Additionally, this earnings season could see its fastest growth rate since 2011 with seven sectors expected to see double digit earnings growth. Get all the details in this week’s edition of steady investor’s week…
Zuckerberg, Unscathed – Mark Zuckerberg testified before Congress this week, and market participants were watching closely for hints of possible regulation and punishment for Facebook. What happened instead, in our opinion, was the equivalent of watching a teenager explain to her grandmother how to use an iPhone. Lawmakers appeared to be unaware of how the platform works, how data is collected and used, and what the meaningful issues were. The end result, in our view, is that lawmakers have a long road ahead if they are to enact meaningful legislation aimed at data privacy. Investors may walk away from all this feeling more confident that the “techlash” may be little more than words at this stage, and the possibility of heavy-handed, broad legislation appears to be very low. Facebook stock rallied after the testimonies.
Earnings Season Kick-Off – Q1 earnings season could be one of the most interesting we’ve had in years. The bar is set high – S&P 500 corporations are expected to post year-over-year earnings growth in the 17-18% range, which if met would market the fastest growth rate since 2011. All eleven S&P 500 sectors are expected to report year-over-year earnings growth in Q1, with seven of those sectors expecting to see double-digit earnings growth led by Energy, Materials, Information Technology, and Financials.1 With expectations running so high, it sets up the possibility that the street could fall short – which, in our opinion, could hinder investor sentiment and weigh on stocks.
Deficits and Debt Back in the Headlines – the Congressional Budget Office released a report this week assessing that the U.S. budget deficit could surpass $1 trillion by 2020, two years sooner than previously estimated. By 2028, the agency expects the deficit to top $1.5 trillion. The impact of a massive budget bill and tax cuts is expected to widen the deficit, with the agency anticipating that economic growth will not be sufficient to make up the shortfall. In short, deficits and the debt know no political party.2
Apple Inc. Achieves Noteworthy Goal — Apple, Inc. announced this week that it is now powering all of its facilities and operations with 100% renewable energy. In what is a remarkable feat for Corporate America and a company of Apple’s size, the accomplishment includes data centers, offices and retail stores in 43 countries. It does not include third-party suppliers and manufacturers, but Apple has its sights set there too. The company intends to power its entire supply chain with renewable energy.3
Feeling Pressure at the Pump? – as crude oil prices and futures have risen substantially from lows, gasoline prices are expected to feel upward pressure as well. According to the U.S. Energy Information Administration, average regular retail gas prices reached $2.70 a gallon last week – the highest level since 2015. Analysts expect they could creep up to $3 by summer, as refiners transition to summer-grade gasoline, which is more expensive to produce than winter-grade fuel.4
While staying up-to-date on current events can be helpful in guiding your investments, it may also leave you with information overload. Many investors feel overwhelmed by the number of issues they need to stay on top off to keep their portfolio on track. If you have felt this way, you are not alone!
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2 Bloomberg, https://www.bloomberg.com/news/articles/2018-04-09/u-s-budget-deficit-to-balloon-to-1-trillion-by-2020-cbo-says
3 Energy Business Review, http://solar.energy-business-review.com/news/apple-achieves-100-renewable-energy-usage-at-all-locations-100418-6109918
4 ABC News, http://abcnews.go.com/Business/story?id=3639612&page=1
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