Monday, July 22, 2019

Earnings, Earnings, Earnings

Monday, July 22, 2019 - US earnings season officially kicked off last week and through yesterday approximately 15% of the S&P 500 has reported results for the second quarter. This earnings season draws particular interest due to recent economic indicators, both domestically and abroad, pointing to signs of slowing growth and the impact of trade tariffs. While still very early in the reporting season, the good news is that earnings have been better than feared. The EPS growth rate for the second quarter is trending toward +2.3%, which is a slight improvement relative to the -2% growth rate expected only a few weeks earlier.

US Financials have posted stronger than expected results due to a robust lending environment, tight expense controls and aggressive share buybacks. Credit conditions remain sound, putting to rest any concerns that the US consumer is showing signs of fatigue. While the consumer appears healthy, earnings weakness from US railroads highlight some of the challenges that the US industrial sector is facing. CSX lowered full year guidance this week due to macroeconomic and trade uncertainty, sending the stock down 10% on the day. The disparity in earnings reflects the bifurcation that the US economy is experiencing since the trade dispute began last year. Adding to the noise, the continued shutdown of Boeing’s 737 fleet has also damaged trade – airlines are a significant manufacturing segment with ripples through a variety of industrial areas.

Recent trade policies have slowed several cylinders of the US economic engine, leading to declining economic forecasts for the full year despite a healthy consumer. The market appears to be optimistic that US and China trade relations will improve in the coming months healing the US industrial sector and business confidence. Until then, we expect a choppy environment for the foreseeable future with heightened earnings volatility. Our view is that the US consumer will finish strong after a noisy start to the year, but ultimately the industrial sector needs to fire up again for this economy to get back to a growth rate that soothes investors and extends the cycle.

ETFG Quant Movers
The top 3 Quant Gainers of this week are IQ Chaikin US Large Cap ETF (CLRG), Sprott Gold Miners ETF (SGDM), and Vanguard FTSE All-World ex-US ETF (VEU). The top rated 3 Quant Losers of the week are IQ 50 Percent Hedged FTSE Europe ETF (HFXE), Global X MSCI Greece ETF (GREK), and JPMorgan Long/Short ETF (JPLS).

ETFG Weekly Select List
The ETFG Select list shows our top-rated ETF by each sector. Global X Gold Explorers ETF (GOEX) is our top rated Basic Material. Invesco Dynamic Retail ETF (PMR) is our top rated Consumer Discretionary. Our top rated Consumer Staples ETF is iShares Global Consumer Staples ETF (KXI). Our top rated Energy ETF is VanEck Vectors Oil Service ETF (OIH).

To learn more about our ETFG Select List, please visit us at or call us at (212) 223-ETFG (3834).

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