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Overview: Stocks continued to oscillate last week, as investors digested the latest in U.S.-China trade war tensions. Both U.S. and international stocks finished in positive territory for the week, led by the S&P 500 index, which was up 2.8%. Bond yields touched historic lows, as the 2-year, 10-year and 30-year Treasury bonds finished the week at 1.51%, 1.50%, and 1.96% respectively. On the economic front, consumer spending increased 0.6% in July, above expectations, and inflation readings remain in check, with the Personal Consumption Indicator (PCE) up 1.6% year-over-year. The big news this week will be Friday’s employment report, with a consensus expectation of 160,000 jobs added for July and a 3.7% unemployment rate.

A note on earnings: In the second quarter, earnings growth slowed to 4.9%, following a 20%+  pace year-over-year in 2018 (JP Morgan). Slower earnings have been expected, given fading fiscal stimulus, slower global growth, lower energy prices, and a stronger dollar. An important takeaway is that earnings beat expectations, which were forecast to be negative at the start of the reporting season. Corporate margins have been strong, and interest expense and taxes have been stable to declining. On the borrowing front, companies took advantage of low rates in prior years to issue much of their debt, and can take advantage of historically low rates to issue debt going forward, allowing stability in interest rate costs. Taxes should be steady as well, as the Tax Cuts and Jobs Act lowered the corporate tax rate from 35% to 21%. Employee costs should rise only gradually, given the ability of corporations to hold down wages and benefits. The conclusion is that even though earnings growth is lower, margins should remain intact, which bodes well for companies in the future.

This communication is for informational purposes only. It is not intended as investment advice or an offer or solicitation for the purchase or sale of any financial instrument.

Indices are unmanaged, represent past performance, do not incur fees or expenses, and cannot be invested into directly. Past performance is no guarantee of future results. 2713647