Earnings are here

Feeling Sentimental 

October consumer sentiment was revised half a point lower to 95.5, which is about in line with the average we’ve seen in 2019. Consumers are still optimistic about their own situations but incrementally more worried about the broader economy today than they were a year ago (shocker, I know). However, in quite the turn of events, fewer consumers were worried about the China trade war in October than in September.

Moral of the story: The labor market is still providing consumers enough confidence to continue spending as they have to sustain this record-long economic expansion. However, confidence has definitely waned from the tax cut highs last year and all eyes are on spending this holiday season.

Grounded 

Durable goods orders fell in September and indicated shrinking business investment in tandem with the broader weakness in the manufacturing sector that’s been acting as a drag on the economy. Orders have fallen 5.4% over the last year, which is the largest annual decline since 2016. Part of this drop has been impacted by the lack of Boeing 737 Max jets orders (commercial planes orders declined 12% this month alone) and the GM strike

Moral of the story: Capital goods orders peaked in 2017 and have since seen a steady decline. Any sort of inflection would require…tale as old as time….a resolution in the China trade war. 

Earnings are here 

Earnings season is here in full swing – 718 companies reported last week. Amazon’s profits fell for the first time in two years this quarter driven by increased spending on the one-day delivery initiative for Prime customers. Looking forward to the holiday season, however, Amazon’s guidance for revenues and profits fell short of expectations. They say shorter holiday shopping window, I say weaker consumption expectations. Other earnings this week included Intel, Visa, Verizon, Microsoft, Tesla, 3M, and Twitter. Intel, Microsoft, Tesla reported better than expected results (Tesla finally made a profit!) while 3M lowered earnings outlook driven by challenging macroeconomic conditions causing softness in China as well as automotive and electronics. 

Moral of the story: About 38% of the S&P 500 companies have reported their results for the quarter so far and 78% have come in ahead of expectations (take that with a grain of salt because expectations have been falling). Despite stronger than expected results, 3M and Amazon won’t be the only ones to warn for weaker than expected outlooks.