Earnings Season Shows Strong Results

January 22, 2020

Earnings season kicked off this week, and for the 32 S&P 500 companies that have reported thus far, 78% beat expectations, and the average beat has been 2.4%. These are strong results relative to diminished expectations of an EPS recession. We expect companies to deliver results above ‘lowered expectations’ and generally strike a positive tone for 2020 growth. 


The market is likely to pullback sometime in the first quarter. Our expectation is that a healthy pause/pullback is likely to develop, resulting in a broad 5-8% trading range. The pending pullbacks should be viewed as an opportunity to add to equity positions. 

President Trump hosted a victory ceremony in the White House East Room where he and China Vice Premier Liu He signed the Phase One agreement. While questions remain as to how in practice it will work, the agreement is a short-term victory for the President as it commits China to increase agriculture, manufacturing, and energy purchases from the US. While the $200 billion two-year figure is a target, it seems to put the China trade tensions on the back burner through the election in November.

There is speculation that with China Phase One, USMCA, and an agreement with Japan complete, the President’s trade team may now turn to Europe. However, while the US trade negotiators have finished top priorities, officials in Brussels are now focused on Brexit and negotiating a free trade agreement with a non-EU United Kingdom.  Some in Europe believe the Brexit deal will put talks with the US towards the back of the queue. 

Frame 2

Retail sales increased 0.3% in December, matching the consensus. Sales growth also averaged 0.3% in Q4, on par with the previous quarter, but weaker than in 1H 2019. The moderation reflects softer economic growth in the second half of last year. 

  • Vehicle sales declined 1.3% at yearend, the most since January, but gas station sales rose 2.8%, partly due to higher gasoline prices.
  • Excluding vehicles and gasoline, retail sales rebounded 0.5%, its first increase in four months, led by apparel (+1.6%, the most since March) and building materials and supplies (+1.4%).
  • Most other major categories also advanced.
  • Online sales were rather soft, up only 0.2%, following three straight months of declines. 

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