While many US firms warned their investors that softer profit growth was a real concern, the first round of reports during earnings season have been much the opposite as many firms are reporting stronger-than-expected results. The first 43 firms that reported in the S&P 500, surprised markets by beating analysts expectations 84% of the time. But fears continue to linger. Of the key factors are slower global growth and the ongoing trade war between the US and China. China reported its Q2 GDP and at 6.2% it was the slowest expansion reported in 27 years.
Well despite the earnings strength that has surprised markets in the first week of this busy season, S&P 500, the Dow and other indices are trading flat to lower. Keep in mind that we have been promoting a strong bearish stance from 2,970 to 3,000 in S&P 500 and from 21,500 to 21,700 in Nikkei 225. Bearish is the current stance we hold until more reports on earnings and trade come to market.
Our Views: The strong and resilient US economy and equity market seems to fade occasionally but – just like Payrolls – bounces back with added strength that few of us (I was surprised) predict or sense. The Fed will likely put in place the insurance cut and leave the market alone for 3 to 6 months, allowing the Fed Put to remain while the trade war intensifies.