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A Bird's Eye View Blog

Fireside Charts: "Great Expectations" for Earnings, a Struggling Housing Market, and Surging Chinese Buybacks

By:BCM Investment Team | Date:Jul22, 2019 | Category: Equity, Economics, Market Highlights, Fireside Charts

While analysts seem optimistic about future earnings—with the consensus expectation at ~7% for 4Q19—a potentially weakening USD, ongoing debt ceiling negotiations, and a weak print for June housing completions paint a less-rosy overall economic picture. Emerging market equities continue to struggle, as EM value stocks currently trade at 1/4 the valuation of U.S. equities. Buybacks surged to record highs in China after regulators eased restrictions that previously limited their use. Will this be enough to stymie their slowdown, or even boost EM performance? Finally, IMF bailouts surged and expanded to include many developed European markets during the financial crisis, raising concerns about the codependency between the Eurozone and the IMF. Will that trend continue under Acting Managing Director Lipton's, or his permanent successor's, leadership in future crises?

 

 

1. Analysts tend to back-end load their earnings estimates. Will earnings really grow at 7%+ in 4Q19?

 

 Source: Yardeni Research, as of 7/22/19

 

 

2. Will lower interest rates weaken the USD, or will the Iranian-driven fear give it a bid?

 

Source: The Chart Store, as of 7/22/19

 

 

3. Gold is enjoying the tailwinds of both the fear trade and the prospect of a weaker USD.

 

 Source: The Chart Store, as of 7/22/19

 

 

4. Housing completions rolled over again. Note this recovery is only to the bottom of the previous four cycles. Saddle a few generations with $1.5 trillion in student debt and this is what happens...

 

Source: The Chart Store, as of 7/22/19

 

 

5. Given the declining number of high school seniors each year and the astronomical costs, this trend is likely to accelerate...

 

Source: WSJ Daily Shot, as of 7/22/19

 

 

6. As yet another debt ceiling limit battle emerges in DC, just what do our deficits & surpluses look like historically?

 

Source: The Chart Store, as of 7/22/19

 

 

7. When will EM equities have their day in the sun?

 

 Source: PIMCO, as of 7/22/19

 

 

8. Chinese companies have joined the stock buyback bandwagon...

 

Source: Wind, as of 7/22/19

 

 

9. When times get really tough, the IMF can step in in addition to monetary and fiscal stimulus...

 

Source: WSJ Daily Shot, as of 7/22/19

 

 

 

Chinese investment in the U.S. has decreased by approximately 88% during President Trump's first two years in office, from an all-time high of $46.5 billion in 2016 to only $5.4 billion in 2018. However, an undisclosed number of Chinese companies submitted applications seeking tariff exemptions on imports of American farm goods over the weekend, a move that is being interpreted by many as a promising sign of renewed trade activity. Are you feeling optimistic about improving relations between the U.S. and China? To keep up-to-date on the latest trade developments and their effects on the economy, subscribe to the chart blog for daily or weekly notifications.

 

 

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Disclosure: The charts and info-graphics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are a recommendation to take any action. Individual securities mentioned may be held in client accounts.