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U.S. Stocks Rebound From 2018’s Losses

Earnings, expectations for global growth, buybacks help, but CFOs turn more cautious.

The major U.S. stock indexes have fully rebounded from the selloff that began in the third quarter and reached its nadir just prior to the holidays.

Positive earnings performance thus far during the current earnings season has helped drive stocks higher, driven by more companies beating forecasts by analysts tracking company results.

On April 23, the S&P 500 and Nasdaq each posted new record highs, while the Dow Jones Industrial Average was near record territory. The S&P 500 eclipsed the high set on September 20, while the Nasdaq rose past its previous record high on August 29. For the year through April 23, the S&P 500 is up 17.0%, its best start to the year since 1987. The Nasdaq has risen 22.4%, its best yearly start since 1991. The Dow is up 14.3% since the beginning of the year.

Forecasts for the first quarterly loss in earnings for companies in the S&P 500 since the second quarter of 2016 are beginning to be questioned. More companies are beating forecasts, albeit given that expectations were set lower earlier in the quarter, adding to prospects that aggregate S&P 500 earnings-per-share will turn a profit this quarter rather than a loss, once earnings season is done and dusted.

More than a fifth of companies in the S&P 500 have reported results, with nearly 80% of those companies producing earnings results that topped analysts consensus estimates, compared with about 65% in the fourth quarter, according to data from Refinitiv, cited by MarketWatch. 1

Expectations of stronger global growth are also benefiting stocks with recent data showing improvement in China, though the government recently noted financial and property markets should be monitored for further risk. Here in the U.S., market participants will be watching closely for the Bureau of Economic Analysis’s release later this week of its advance estimate of first quarter gross domestic product (GDP) growth.

Equity strategists at J.P. Morgan believe earnings growth for the S&P 500 will be 2% to 3% higher for the first quarter, instead of the decline of about 4.0% as tracked by data providers like FactSet. A recovery in the global economy, further stock buybacks from companies, and an end to trade disputes were cited as factors benefiting stocks.

“After a record year for buybacks in 2018, this year should be even higher at ~$850b, which would alone drive EPS growth of ~2%. This view is supported by record buyback announcements YTD of $213b led by Tech ~$46b and Industrials ~$40b,” J.P. Morgan’s strategists wrote in a report cited in this CNBC report. 2

Share repurchases have helped underpin the U.S. equity market in recent years. But investors may begin to demand more details from companies on whether increased repurchase authorizations make sense this late in the current economic cycle, particularly from companies with weaker balance sheets and credit ratings.

The runup in U.S. stocks and forecasts for a recovery in the global economy come amid rising oil prices and the expiration next month of waivers the U.S. administration granted to buyers of Iranian crude oil. At $74.51 a barrel on April 23, Brent crude hit its highest price in nearly six months.

And while investors have been bidding up U.S. stocks, chief financial officers (CFOs) are more cautious about their companies’ key metrics than they were in the fourth quarter. A survey of 158 CFOs in mid-February (69% of them from public companies) found expectations for revenues, earnings, hiring, and dividends declined compared to the fourth quarter, though capital spending rose. These were among the findings of Deloitte LLP’s CFO Signals™ quarterly survey which tracks the thinking and actions of leading CFOs among North America’s largest companies.

“Assessments of the North American, European, and Chinese economies all declined. Own-company optimism rebounded from last quarter’s very low reading, but still sits at its third-lowest level in three years. Expectations for revenue, earnings, domestic hiring, and wages declined (only capex rose), and all metrics sit below their two-year averages,” Deloitte reported in the survey. 3


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1-Chang, S. and Matthews, C. (2019, April 24). U.S. stocks struggle for traction higher on mixed earnings. MarketWatch. Retrieved from:

2-Domm, P. (2019, April 24). JP Morgan lays out a blueprint for how this record run in the stock market will keep going. CNBC Market Insider. Retrieved from:

3-Deloitte LLP’s CFO Signals™ (2019, April 23). CFO Signals™: Q1 2019 Anticipating a slowdown (but not a recession). Deloitte Development LLC. Retrieved from:

Sources for Financial Data:

S&P 500:


Dow Jones Industrial Average:

Brent Crude:

Investment advisory services are offered through BCJ Capital Management, LLC., an SEC Registered Investment Adviser. bInformation presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein. BCJ FG 19-77                    

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