Markets have been all over the place this week. The “place” in this context meaning down. The S&P 500 Index saw its worst day this year on Monday, trading down 3%. A presidential tweet last Thursday precipitated the decline in equity prices. The tweet announced plans to impose 10% tariffs starting September 1 on $300 billion in Chinese exports. Markets did not like this at all. Also, China was labeled a currency manipulator and the Chinese Yuan was allowed to trade down. Investors did not like this either. Markets are down a little over 2% this week. The CBOE Volatility Index (VIX) shot up 60% from July 26. This is after trading down 50% from the beginning of the year. Looks like volatility is back with a bang.

Company earnings reports from the second quarter continue to come in with a little over 85% of S&P 500 companies reporting. Companies are performing better than expected. Earnings growth for the period is 2.7%, which is 5.5% better than expected. 73% of companies have beat earnings expectations, 8% have matched and 19% have missed. Revenue growth has also been positive at 4.6%, which is 1.1% better than expected with 57% of companies beating sales expectations and 43% missing. Analysts expect earnings and sales to moderate a bit in the third quarter. Current estimates have earnings contracting by 1.1% and sales growing by 4%.

The PMI Manufacturing number from Markit came out with a reading of 50.4. This is better than the expected level and the previous month’s reading of 50. The ISM Manufacturing Index on the other hand came in a little lighter at 51.2 than the expected 52. A reading over 50.0 in these two indices has traditionally been an indicator of strength in manufacturing.

Wage growth continued in July. Hourly earnings grew by 0.3% over the previous month and 3.2% year-over-year. This is a little over 1% higher than inflation, showing some real wage growth. Wage growth however, has not accelerated as much as expected. This has contributed to the low inflation environment we are in.

Auto sales declined a bit in July. Light vehicle sales were at 16.8 million for the month, down 300,000 from the previous month. There has been more growth seen in the used car sales market than the new car market.

Contributed by | Kuuku Saah, CFA, Investment Analyst

Kuuku is an Investment Analyst with seven years experience in the Wealth Management division of Bankers Trust, most recently on the Trading Desk as a Securities/Trading Specialist. Kuuku’s primary responsibilities include supporting our portfolio managers in security and portfolio analysis. Kuuku attended Drake University and double-majored in finance and economics. During that time he interned with BTC Capital Management.


Source: BTC Capital Management, Bloomberg LP, Ibbotson Associates.
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