Friday started another earnings season with JP Morgan Chase, Wells Fargo and PNC Financial all posting results.
JP Morgan reported record profit and revenue, Wells Fargo beat expectations on quarterly earnings. PNC was the laggard in that it only met analyst expectations, but reported higher expenses and provision for credit losses.
Of course, it’s much too early to tell what will happen the rest of this earnings season, but the anticipated story for the quarter does seem to have changed in recent weeks.
Earlier this year the conventional wisdom around Q1 2019 earnings was about how bad they would be. Mostly this is because last year’s first quarter was so outstanding that this year can’t help but look bad in comparison.
But lately, we are seeing some signs that the quarter will not be as bad as previously thought. And, as my colleague Jeff Remsburg explained recently, it’s often the surprises against expectations that move the market.
There is no arguing that the market’s performance in 2019 has been outstanding. Stocks are up nearly 15% year to date, as tracked by the S&P 500 Index. To help put into perspective just how good that is, last year from the start to the top in September, the S&P 500 Index was up only 9.62%.
So, what’s driving all the buying?
Neil George, Editor of Profitable Investing attributes it to 4 factors.
No. 1 is fear of missing out, (also known as “FOMO”).
The idea that if you don’t get in and buy that you’ll miss out on the big rally is getting more investors to unpark their cash and get it into the market.
No. 2 is that the Federal Reserve Federal Open Market Committee (FOMC) finally got its messaging right.
The FOMC laid out the plan to watch core inflation, as measured by the Personal Consumption Expenditure Index (PCE). It wanted to see the PCE reach 2% or more before it would act. Then the FOMC acted anyway, reducing its massive bond portfolio and stoking fears of more aggressive actions alongside raising its target range for the federal funds rate.
Then, with the stock market slipping and political pressure mounting, the FOMC punted. Now it’s going to be passive for a while. And with interest rates still not far from post-crisis levels, the credit market supports a buoyant stock market.
No. 3 is the bond market.
The US 10-year Treasury is sitting near 2.5% and remains well bought in the market. This is helping boost the housing market since this is the benchmark for mortgage rates. A strong housing market helps a lot of US sectors.
And with lower Treasury yields, corporate and municipal bonds look even more attractive for the same bond investors. Low yields also reduce funding costs for corporations, which helps the economy and the general stock market.
No. 4 is the US dollar.
The dollar, as measured by the Bloomberg US Dollar Index, is up nearly 7% over the past year. That makes the US a prime destination for global investment.
But he does see some potential downside for some stocks – especially for one sector. As earnings roll in, Neil is watching the tech sector very closely and notes that big earnings disappointments in those stocks could drive everything lower.
Neil is recommending defensive and income stocks to his Profitable Investing subscribers, and you can get all his analysis and picks right here.
Neil is continuing to track these factors and remains bullish overall.
Another one of our advisers also is feeling bullish – especially about April.
Louis Navellier, editor of Growth Investor, pointed out that at least one of the signs he tracks is pointing to more stock market gains.
Historically, April is one of the seasonally strongest months of the year. In fact, it is often the third strongest month of the year, lagging only November and December. Interestingly, the bulk of April’s gains come in the second half of the month, as Tax Day passes and the first-quarter earnings announcement season gets underway.
This year, though, April is lining up to be a strong month overall.
A recent report from the folks at Bespoke revealed that a positive start to the month of April is a good omen for the rest of the month. Since 1945, when the S&P 500 kicks off April with at least a 1% gain, the index is up an average 4.2% in April.
And as you can probably guess, the S&P was up more than 1% in the first week of April. That translates into a very positive sign for the market, and Louis expects it to climb higher in the upcoming weeks and months.
And one of Louis stocks just hit another 52-week high.
We’ve written before about VMWare, a software company that develops computer programs used to create and manage virtual machines. In other words, they help make cloud computing possible.
Back in March I noted that it had reached a 52-week high and had officially doubled in Louis’s portfolio.
Let’s look at an updated chart.
When I wrote about it before, it was trading at $176.66, and as you can see it’s now trading at $192.44, an increase of just under 9 percent just since early March.
Here is part of Louis’s latest update on a stock he has held in his Growth Investor portfolio for more than two years.
On February 28, VMware reported better-than-expected earnings and sales for its fourth quarter. Revenue rose 16% year-over-year to $2.59 billion, slightly better than forecasts for $2.5 billion. And earnings jumped 25.3% year-over-year to $823 million, or $1.98 per share, which topped estimates for $1.88 per share.
For the first quarter in fiscal year 2019, VMware is expected to achieve earnings of $1.28 per share on $2.24 billion in revenue, which represents 11.8% annual revenue growth and 1.6% annual earnings growth. VMW is a Conservative buy below $195.
Picking stocks that will double in your portfolio is never easy, but it does seem as if the market is poised to make bigger gains in the weeks and months ahead.
As always, we advise investors to stay focused on their plan and the fundamentals of their investments. Neil sees some possible danger signs in tech stocks and Louis still believes the market is going to narrow.
To a richer life,
Luis Hernandez, Editor in Chief
