Market Beat: First quarter in review
April 5, 2018
The first quarter of this year has been a choppy one for the stock markets. We saw record levels for most of the major indexes on Jan. 26.
The Dow Jones Industrial Average hit an all time high of 26,616.71. The S&P 500 logged a record 2,872.87 and the NASDAQ reached 7,588.32 on March 12.
For the first quarter the Dow is down -2.49 percent, the S&P 500 is down -1.22 percent and the NASDAQ is up 2.32 percent. Gold has recorded a gain of 1.14 percent and crude oil is up 8.26 percent for the first quarter. The VIX or the volatility index, also referred to as the fear index is up a whopping 80.89 percent this quarter as markets have been spooked over the possibility of a trade war developing.
Earnings reporting season for the quarter will get started in the next couple of weeks and will last about a month. Corporate earnings are the primary driver of stock prices. A real good earnings reporting season could help stabilize the market.
A good earnings season could help reduce the market volatility that we’ve witnessed over the last couple of months.
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The forecast for this quarter is very good. According to data from FactSet we've seen a record high increase for earnings per share estimates for this quarter. Earnings per share or EPS estimates have grown by 5.4 percent and the normal is for them to drop by -4.1 percent. This is a significant increase. This is the greatest increase since FactSet began recording bottom up earnings forecast increases in the second quarter of 2002.
Ten of the eleven S&P sectors have reported greater bottom up EPS estimates, led by the Energy Sector at 18.0 percent. Telecom Services are next at 15.3 percent, followed by Industrials at 10.2 percent and Financials at 9.9 percent.
A few different factors are contributing to the large increase in bottom up earnings estimates. One is the rising price of crude oil which will impact the Energy sector the most. Another is the forecast increase in interest rates in 2018 which could benefit the Financials.
The corporate tax cut from the passing of the Tax Cuts and Jobs Act could boost earnings across all sectors, however the large multi-national corporations could also get hurt if a trade war does begin.
We'll have to wait and see how the earnings reporting goes after it gets started in a couple of weeks.
A good earnings season could help reduce the market volatility that we've witnessed over the last couple of months.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.