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Strategic Insights

Volume 8, Edition 5 | January 28 - February 1, 2019

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A Super Start

Doug_Walters Doug Walters | Articles

Read Time: 2:00 min | Video: 1:19

02_01_19

Superstitious investors will be rooting for the Rams to outduel the Patriots this weekend, but we would be content to see a strong second half to the corporate earnings season…

Contributed by Doug Walters , Max Berkovich , Aleksey Marchenko

The Super Bowl is this weekend which means we have officially closed out the first month of 2019. We take this opportunity to play Monday morning quarterback, recapping the highs and lows of January. In sharp contrast to how last year ended, all the major asset classes we follow are up. Investors who held tight during the 2018 correction are now enjoying the rewards of their patience. Driving sentiment is a robust corporate earnings season which is about halfway over. Two-thirds of companies have surprised to the upside, with 15% growth reported.

Headlines this Week (Jan 28 – Feb 1, 2019)

  • The S&P 500 is up over 8% for the month, a nice recovery from the 9% drop in December.
  • Bonds are also putting up points on the scoreboard in January with near 1% return from kick-off.
  • For those preferring fútbol to football, Emerging Markets is coming on strong, up 10%.
  • However, the glaring weakness in the offense is turnover-prone India, which still needs to prove it can recover from recent fumbles.
  • The MVP award for January goes to Small Cap stocks, up 13%.

The Week Ahead

  • Notable earnings reports from Alphabet (GOOG), Disney (DIS), and Expedia (EXPE)
  • 2/5: State of the Union address (“the state of the union is…”)
  • 2/5: Chinese New Year (Year of the Pig… a symbol of wealth)
  • 2/7: UK interest rate decision (no hike expected)
15.4%

Spotlight: Why to root for the Rams

It is that time of year again when we update the “Super Bowl Stock Market Indicator.” As legend has it, if the NFC (or original NFL team) wins the Super Bowl, then the stock market will be up. Our data shows that the average total returns of the S&P 500 in a year the NFC/NFL wins is 15.4% versus 1.8% if they lose. Admittedly, the indicator does not have a great track record in recent years. In 2017, the Patriots (AFC) won yet the market was up 22%. In 2018, the Eagles won (NFC), yet the market was down 4%. However, the last time the Patriots and Rams met in the Super Bowl (2002), the Patriots won, and the market fell 22% as the Tech bubble burst. Superstitious investors should adorn their horns and join the mob squad. Go Rams!

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Stock Highlights from Max

Contributed by Max Berkovich

Communication Breakdown

In an earnings release packed week, it was the Banks that failed to garner much interest, mostly thanks to what is expected to be a longer low interest rate regime from the Federal Reserve. Because of the banks, the Financial sector was the laggard. The leading sector was Materials.  On the earnings front…

  • Facebook (FB) reported a consensus topping quarter. Investors hit the like button on the 30% year-over-year revenue growth. 93% of the $16.9 Billion in revenue came from mobile. Daily average users and monthly active users were up 9% in December from the year-ago period. The company claims that 2.7 Billion users use a Facebook product (Facebook, Instagram, WhatsApp or Messenger) and 2 Billion do it daily. The company ended the new quarter sitting on a cash pile of $41.1 Billion. For the record, the market cap of rival Snapchat (SNAP) is only $8.8 Billion. The company is not in the clear. There are still significant regulatory headwinds, but the advertising revenue gains made in the last quarter can sooth some of that.
  • A similar earnings surprise was nowhere to be found for fellow communications sector holdings AT&T Inc. (T) and Verizon Inc. (VZ). Both companies missed expectations and failed to inspire investors with guidance. We look to The Walt Disney Co. (DIS) and Alphabet, Inc.’s (GOOG, GOOGL) earnings next week for further color on the sector.

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Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets over $1 billion.

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