For Immediate Release
Chicago, IL – October 15, 2019 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: China Life (LFC, VIPshop VIP and Sketchers SKX.
Here are highlights from Monday’s Analyst Blog:
Jumping Over a Low Earnings Bar: Global Week Ahead
In the Global Week Ahead, traders brace for a 3rd consecutive quarter in a S&P 500 earnings decline.
This is akin to the 2016 “earnings recession” period. But this time, it is driven by U.S. tariffs and trade uncertainty.
Zacks Director of Research, Sheraz Mian, shared the latest Q3 earnings profile.
For Q3 as a whole, total earnings for the S&P 500 index expect to decline -5.0% from the same period last year on +4.2% higher revenues. 11 of 16 Zacks sectors expect lower earnings compared to the year-earlier period -- including the Info Tech sector.
We will surely know what the final Q3 earnings growth pace turns out to be when all 500 results are in. But we know this in advance: they will be better than these expectations, and likely close to the flat line that we saw in the first half of the year.
The Finance sector dominates this week’s lineup. A representative cross section of the space’s representatives come out with Q3 results.
These include big money-center operators like JPMorgan, brokers like Goldman Sachs and regional players like PNC Financial.
This week’s lineup of reports has enough representation from other major S&P 500 sectors to give us a good flavor of what to expect the rest of this reporting cycle.
Outside of Finance, we get results from Netflix, Schlumberger, Johnson & Johnson, IBM and the major railroad operators.
In total, more than 100 companies report quarterly results this week, including 52 S&P 500 members.
Next, I put Reuters’ five world market themes, in order of importance to equities.
As you can see, the U.S. Q3 earnings season leads. If the U.S. catches a cold, the global week will get sicker.
(1) Q3 Earnings Season Begins
Trade and impeachment have grabbed the most headlines of late but the countdown has now begun for the U.S. third-quarter earnings kickoff.
No good news here: expect screens to turn red on Tuesday for JPMorgan, Citigroup, Goldman Sachs and Wells Fargo.
With interest rates falling and the Treasury yield curve having inverted earlier in the year, U.S. banks should report a 1.2% decline in earnings, Refinitiv analyst David Aurelio predicts. It will be the first decline since the third quarter of 2016, Factset data indicates.
Others to watch for are railroad operator CSX Group on Wednesday, then Union Pacific and Honeywell International on Thursday; they will show the tariff impact on trade-sensitive transport and industrial firms. Trade-obsessed markets will also watch for September industrial production figures on Friday to see how manufacturing sidis performing.
Tuesday is also when President Trump’s threatened tariff increase is supposed to take effect on $250 billion of Chinese goods. There is some optimism that they might be able to find enough common ground to delay the scheduled hikes. The talks went “very well,” according to Trump.
(2) Trade War Scorecard
More on trade. With the U.S.-China trade summit out of the way, markets face a sobering return to “normal transmission.”
Two numbers this week will shed light on the bigger picture: China’s trade balance and annual growth. Both could be ugly. All indications are trade hostilities are slowing the world’s second-largest economy: exports dropped in August and data on Monday is expected to show they fell faster in September.
Economic growth — the weakest in 27 years in June — is also seen going a little lower in the third quarter to test the bottom end of Beijing’s 6% to 6.5% target for 2019. All that will put pressure on the central bank to loosen monetary policy, especially if the planned U.S. tariff increases go through.
Another number of interest will be the daily fixing of the yuan’s onshore trading range. A fall past the symbolic seven-per-dollar rate in August was considered a response to economic weakness as well as a message that the currency would be on the table if the trade war escalated. The yuan has been pegged around 7.0730 for a few weeks, and a move in either direction could telegraph clearer than words whether the trade war antagonists are moving closer together or further apart.
(3) U.K. Pound Sterling Bulls Are Unleashed
Sterling bulls could be forgiven if they thought Christmas had arrived early.
Deadlocked for months over Brexit, British Prime Minister Boris Johnson and his Irish counterpart Leo Varadkar now say they “see a pathway to a possible deal.” The pound has witnessed its biggest two-day jump in more than three years, as investors slash some of their extreme short sterling bets. Expectations for an interest rate cut are falling too, as a positive Brexit outcome would remove the uncertainty hanging over the economy.
But the road is long — EU Council President Donald Tusk has signaled there is no guarantee of a deal and time is running out. It also remains unclear what compromises have been made on the thorny Irish border issue, but hopes are now high of further progress ahead the Oct 17-18 EU summit.
The risk of exiting without a deal had already faded, but if a deal is agreed at the summit or before it, sterling could jump above a 2019 high of near $1.34 hit in March. Delay and recrimination, however, could see the pound reverse the gains it racked up so quickly.
(4) End of a U.S.-Turkey Friendship?
Meanwhile, Trump’s blossoming friendship with Turkish President Tayyip Erdogan has hit a rocky patch.
Bosom buddies not long ago, when the U.S. president shielded Ankara from being sanctioned over its purchase of Russian missile defense systems, the two are locking horns over Turkey’s launch of a military campaign in northeastern Syria against Kurdish forces. “I say hit Turkey very hard financially & with sanctions if they don’t play by the rules! I am watching closely,” Trump tweeted.
Republicans in the House of Representatives have announced plans for legislation to impose sanctions and the upcoming EU summit will debate sanctions. The quarrel carries enormous risks for Turkey’s economy, which is still emerging from its worst slump in two decades.
The sanction threats have pushed the lira to its weakest level in nearly four months and its dollar bonds have tumbled. Risks include higher deficits and borrowing costs and slowing tourism. The volatility is likely to prevent the central bank from easing policy later this month, crimping economic recovery.
(5) The IMF and World Bank Annual Meetings Begin
The International Monetary Fund and World Bank’s autumn gathering promises to be a gloomy one for the finance chiefs, bankers, development officials and politicians who will descend on Washington D.C, for the Oct. 14-20 meeting.
New IMF chief Kristalina Georgieva has warned of a “synchronised slowdown” and “substantially weakened” manufacturing backdrop due to trade wars, but other risks loom, too.
A decade after the global financial crisis, it’s becoming clear that major central banks have maxed out their ability to lift economic growth. Will more government spending do the trick instead? For debt-burdened countries, that may seem a tall order too. Also, what tools can policymakers use should the world tip into recession? And there is the more immediate fear of global money markets seizing up again, 2008-style, with the recent repo rate surge in U.S. interbank markets a potential warning signal.
U.S. and Eurozone weakness won’t leave emerging markets unscathed either. There are already pockets of distress such as Argentina, but other countries — from Egypt to Ecuador — are starting to witness violent protests. Climate change needs to be addressed as well. Georgieva says decelerating growth calls for accelerating action. Let’s see what plans are sketched out.
Top Zacks Ranked Stocks
If it is time to buy China-related shares (that’s still an open question), here are three picks to look into more closely.
(1) China Life: This is now a $11.90 stock and it is still a $67B market cap company in mainland China. Choose your direction on where share prices go from here. There is a Zacks A for Value and a D for Growth.
(2) VIPshop: Again, another mainland China stock from year’s past. It is now just $9 a share and the market cap is $6B. However, there is a Zacks A for Growth and a B for Value and a B for Momentum. Sounds like this set of shares is ready to rise.
(3) Sketchers: At $36 a share, this U.S.-based (but China sourced) sneaker maker has a $5.7B market cap. The Zacks B for Value, A for Growth and A for Momentum can’t be denied.
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