1. Equities Trump Bonds
The age-old showdown between equities and bonds in times of global volatility is always the source of a healthy debate. However, despite the mad October sell-off, equities have still managed to reign supreme in 2019 and may not be done just yet.
Even though we are seeing an overwhelming amount of bearish rhetoric surrounding global growth, the European slowdown and shaky performance out of emerging markets, the US is displaying some strong fundamental characteristics.
Robust employment and inflation data, coupled with good earnings growth, a dovish Fed and positive developments in the trade war, have the potential to keep the US market buoyant for the year and equities on their solid run of form. At this current rate we may even see a return to the rate hike cycle by the end of the year.
Strategists at Lazard Asset Management have labelled 2019 as a year to be “overweight global equities, but focused on upgrading the quality of what you own”. What this means is that the equity bulls are most certainly grazing on US soil, but on quality companies with sound fundamentals, rather than blindly punting pie in the sky growth stocks.
Some solid advice, but with volatility posing an ever-present threat, we’ll just have to wait and see what 2019 has in store for us.
2. Trade War V2.0
A recent report out of the US has labelled foreign auto imports as “a threat to national security” and has raised concerns about a fresh bout of tariffs being unleashed on the already battered European Automakers. As if they didn’t have enough on their plate already!
While President Trump has Assured EU automakers that no such tariffs were on the agenda just yet, European lawmakers have already started their contingency planning and issued a stark threat of retaliation. Here we go again!
While the finer details of the report remain classified, analysts expect that it would recommend the use of minor tariffs at the very least. However, with Germany’s growth in a downward spiral, it’s economy would be highly sensitive to even the slightest legislative change.
The country is extremely over-exposed in its export-led growth strategy driven by its auto and manufacturing sectors. Its primary contributors; BMW, Daimler and VW are currently down between 13-28% over a 52 week period with room for more losses, should the tariffs come into force.
Germany has already issued threats of retaliation against the struggling US soybean industry and oversupplied liquefied gas export market in the event that trade war V2.0 rears its ugly head.
For now it’s all just speculation, but German investors are seriously concerned….And rightly so!
Today we are watching…
1. Walmart (#walmrt)
Walmart is looking in good shape today ahead of its earnings, thanks to a 43% increase in e-commerce sales last quarter. The company outperformed its peers Kroger, Costco and Target by quite some distance and analysts are viewing the stock as undervalued at its current price 5% below its 52 week high. Investors are expecting an earnings beat from the retail giant with many investment houses upgrading their earnings estimates ahead of today’s announcement. The consensus EPS estimate is $1.33 (flat) on revenue of $138.76bn (1.8%).
2. First Energy (#firstengy)
US Energy provider, First Energy, is in a solid position ahead of its earnings today, with analysts sounding upbeat about the company’s prospects going forward. Despite being range-bound since 8th of February, strong fundamental improvements in the company’s distribution framework and cost structure have put the company on a solid grounding for 2019 and may lead to positive gains in its stock price. The consensus EPS estimate is $0.49 on profits of $250.61 million.