Getting Better All the Time

by Ralph Cole, CFA
Executive Vice President of Research

Week in Review

Stocks finished higher for the fifth-straight week, while bond prices were flat. Although Fed comments and more discussion of tax reform dominated the capital markets headlines, but there was little movement in the large indices.

Getting Better All the Time

Money management giant Blackrock kicked off fourth-quarter earnings season on Wednesday. While company news regarding reported positive earnings was encouraging, CEO Larry Fink’s comments about the global economy reinforced investor sentiment. He said, “Over the past year, the market environment has improved considerably. We’ve seen greater political stability in Europe. China is continuing to show economic strength. And after a long period of stagnation, we're seeing consistent growth in Japan.” Fink added, “Overall, the world has become much more resilient.” We couldn’t agree more.

The world is experiencing a synchronized economic upturn that is touching every corner of the globe. Virtually every major economy in the world is either improving or expanding, as seen in the Global Purchasing Managers Index (PMI) chart below.

Source: Strategas

This global expansion is very different than the past several years, when countries seemed to be less synchronized in their recovery and growth. With the entire world improving economically, there is resiliency and sustainability in the economic cycle that is being reflected in the markets.

Bank Earnings

 JP Morgan, Citigroup and Wells Fargo announced earnings this week. As expected, recurring themes were increasing net-interest margins, slowing loan growth and weak trading activity. Both JP Morgan and Citigroup beat expectations, while Wells Fargo lagged as the company tries to recover from their account fraud scandal. Bank stocks have been rallying this past month as interest rates have risen. As a result, this has “raised the bar” for expectations for the industry, but it appears the bar may have been raised too high, resulting in stocks taking a “breather.” We continue to overweight financials because we expect share buybacks and dividends to continue to increase faster than the rest of the market.

Takeaways for the Week:

  • Global economic growth is widespread and gives sustainability to the economic expansion
  • Beware of stocks with high expectations going into earnings season