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Strategic Insights

Volume 8, Edition 36 | October 21 - October 25, 2019

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Positive Noise

Max Berkovich | Articles

Read Time: 2:30 min

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The S&P 500 flirted with a new all-time high on Friday on the back of strong earnings and what can be classified as “positive noise” on a trade deal with China. 

Headlines This Week

Earnings season

  • 40% of the S&P 500 companies have reported earnings thus far.
  • 80% of those reporting have exceeded expectations despite an overall decline in S&P 500 third-quarter earnings growth.
  • According to FactSet, companies with higher Global exposure underperformed, because of softer economy abroad and the strength of the U.S. Dollar.
  • This is the 3rd quarter of declining year over year earnings, but overall revenue so far has increased by 2.8% in the 3rd quarter.

Money & Banking

  • Both China and European Central Banks kept their rates unchanged.
  • China’s one-year loan prime rate was kept at 4.2%.
  • European Central Bank’s (ECB) deposit rate remains at -0.5%, the lowest on record.

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The Week Ahead

Earnings season continues next week with 13 of our portfolio companies releasing results.

Alphabet (GOOGL) starts things off on Monday, with Merck (MRK), Pfizer (PFE), and Mondelez (MDLZ) following up on Tuesday.  The majority of those remaining come through on Wednesday, including Apple (AAPL) and Facebook (FB), while Chevron(CVX) rounds things out on Friday.

  • Analysts expect Chevron’s earnings to fall due to a tough third quarter for Oil.
  • Apple recently reclaimed its $1 trillion valuation on the back of strong iPhone 11 demand, as well as its growing services sector.
  • Alphabet and Facebook continue to come under governmental scrutiny for privacy concerns, amongst other issues.

There are a few notable stories coming out of the U.S. next week, with the Fed’s interest rate decision and the Q3 Gross Domestic Product figures out on Wednesday, and the Nonfarm Payrolls figure on Friday.

  • Experts overwhelmingly (90%) believe the Fed will enact yet another 0.25% reduction in interest rates next week.
  • The consensus Nonfarm Payrolls figure is right around 105,000 jobs added for the month of October.

Brexit is once again in the headlines as the European Union will need to agree to how long of a delay they grant this time around.

  • Brexit was set to take place next week on October 31st.
  • While the EU has agreed on the need for a delay, they are set to reconvene next week to determine how long of a delay they can accommodate.

The Bank of Japan is set to announce its own interest rate decision next week.

  • While admittedly more mixed, the market seems to generally be leaning towards holding rates steady this time around.

Stock Highlights From Max

Tech on the lam

REIT holding Ventas Inc. (VTR) was stung by poor results from senior housing despite mostly good news in the medical office building and health research properties. With only one holding it may not be appropriate to list the REIT sector as the biggest laggard, so we will call out the health care sector for that distinction. The leading sector this week was energy as Philips 66 Co. (PSX) topped expectations by a wide margin. This, fueled by results from PSX on Friday energy stole the crown of the best sector from technology. Which had not one but three earnings season stars in…

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  • Lam Research Corp. (LRCX) beat earnings expectations on sales of $2.17 Billion, which was almost 7% lower than in 2018. All the excitement for the semiconductor equipment maker was centered on future guidance and hints of a gradual up-cycle in microchips. Speaking of microchips…

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  • Intel Corp. (INTC) helped confirm what was foreshadowed by Lam Research Corp. when the chipmaker surprised investors with their results. Intel topped expectations on the back of a spike in data center spending and improving the personal computer market.  Intel also boosted future guidance. Results from both companies helped soothe investors who were caught off guard by poor results from a peer of Intel’s earlier in the week.  Another earnings star from the technology space was…

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  • Microsoft Corp. (MSFT) also beat expectations. Revenue was up 14% year over year and outperformed in all segments. Azure, the cloud computing segment reported decelerating growth decline which was viewed very positively by investors. Azure grew revenue year over year by an astounding 63% but is lower than 64% it reported in the previous quarter and 73% the quarter prior to that.

About Strategic

Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets over $1.3 billion.

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