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Market Bullets - Weekly Update

For the market week ended Friday, August 10, 2018

  • US equity markets dipped slightly last week despite record quarterly profits, as geopolitical tensions due to a potential currency crisis in Turkey weighed on markets.  Investors feared global bank exposure to Turkey, which could have trouble paying back loans amid a devalued currency.  The S&P 500 fell 0.3% for the week, though gains for the year total 6.0%.  The Nasdaq rose 0.4% for the week to bring year-to-date gains up to 13.6%, while the Russell 2000 (small-cap stocks) rose 0.8% as investors focused domestically to bring returns for the year to 9.9%.
  • The situation in Turkey impacted global equity markets much worse, as sharp declines on Friday brought global equities down 0.7% for the week thanks to notable weakness in Europe.  Emerging Markets (EM), of which Turkey is a part, suffered the most last week, down over 1.0% to bring EM returns for the year down to -8.3%, among the worst asset class performances for the year.  
  • US corporate earnings reports for the second quarter are largely complete, and earnings growth has come in around 24% for the quarter.  Projections for earnings growth for 2018 have now increased to roughly 22%, the best level since coming out of the financial crisis in 2010.   

Of Interest To Us...

  • The Street has been relatively dismissive of the 22% earnings growth for 2018, attributing it largely to one-time factors associated with the corporate tax cut that just went into effect this year.  But revenue growth, which has little to do with the tax cut, is on pace to hit roughly 8.5% in 2018, the best level since 2011, suggesting that the underlying demand for US companies is strong.  Does this bode well for US equity markets the balance of the year? 
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