What Happens in Davos…

Snowy with a chance of melting ice caps 

Davos was the place to be this week – the “who’s who” of the financial and political world gathered at the World Economic Forum in Switzerland to discuss prominent economic issues at hand. The themes for this year’s conversation included healthcare challenges and fair access, sustainability, technological disruptions, inequality, diversity and inclusion, global collaboration, and the ethics around many technological possibilities of the future. Trump compared Elon Musk to Thomas Edison, Al Gore compared the climate crisis to 9/11, and Paul Tudor Jones (along with others) warned of the overheated stock market. 

Moral of the story: The World Economic Forum tends to demonstrate a little bit of group-think. Last year’s conversation was around a recession coming in 2020 but this year’s topic du jour was climate change. However, the IMF did once again reduce its global growth forecasts, citing a sluggish outlook with no signs of an inflection (sounds ugly) as underperforming emerging markets are trying to recover while growth in advanced economies is just stabilizing near current levels. 

Not that kind of corona 

ICYMI, the coronavirus made an appearance this week and panic ensued across the globe. Wuhan, China (ground zero for this outbreak) has halted trains and planes out of the city and Hong Kong declared a citywide emergency. Unfortunately, two cases have already been identified in the US so far in Washington and Chicago. 

Moral of the story: This most directly impacted travel and leisure stocks this week such as airlines, hotels, casinos, and resorts. As discussed at Davos, the market is priced quite richly, so any such external shocks can generate noticeable volatility. Fingers crossed for a speedy containment and solution for this latest global concern. 

Earnings…Part 2

We heard from a plethora of industries this week and, for the most part, results exceeded expectations. The streaming war was topical as Comcast indicated an acceleration of losses in cable subscribers while Netflix saw underwhelming subscriber growth in the US and Canada as competitors have emerged in the market. Other notable releases included American Express and Intel, both indicating strong consumer demand.  

Moral of the story: This quarter is a slow and steady grind for earnings but we’ve heard from a little over 16% of the S&P 500 companies so far and about 70% of them have reported earnings ahead of expectations. More importantly, the market’s expectations for future earnings are improving. However, it’s important to note that stock prices are rising much faster than earnings expectations, making for the precariously priced market that was discussed at Davos.