Money Advice

Latest worries include Brexit, China, and earnings

Posted by The Simply Money Advisors Team on Nov 19, 2018 12:04:34 PM

Corporate profits, drama around “Brexit,” and the trade war with China were front and center last week.

With 93% of large companies having reported earnings, another strong quarter is in the books. Compared to the same time last year, sales, on average, have grown about 8% and earnings have increased 26%, according to Bloomberg.

However, at Simply Money Advisors, we expect earnings growth to weaken - but remain positive - in 2019. Some of the reasons we believe earnings could come in below analysts' expectations are slower global economic growth rates, lower oil prices, a stronger U.S. dollar, fading effects of tax reform, higher labor costs, and increasing tariffs.

Earnings growth could end up closer to 5% in 2019 than the expected 10%. As long as recession risk remains low though, earnings should still climb.

The United Kingdom (UK) and the European Union (EU) agreed on a Brexit deal last week, but considering the uproar around it, it may not be able to get through Parliament in its current form.

After the deal was announced, UK Brexit Secretary Dominic Raab resigned, and calls mounted for a “no confidence” vote in Prime Minister Theresa May. To start the possible change in leadership, 48 UK lawmakers must submit letters of no confidence. So far there have been 42 letters.

Also last week, China sent a list of trade concessions to the U.S. This is something President Trump asked for ahead of his meeting with Chinese President Xi near the end of November. While President Trump said the list is not yet acceptable, he also said he thinks a deal will be made.

A comprehensive trade deal from the Trump-Xi meeting is unlikely, but it could lead to a ceasefire and further negotiations.

Federal Reserve (Fed) Chair Jerome Powell had a significant communication blunder last month when he implied the Fed has a long way to go in its rate hiking campaign. Fortunately, he and other Fed members are now walking that back.

For example, just last week, Chair Powell said the Fed needs to be thinking about how much further to raise rates, which suggests a more gradual approach. A rate hike in December and about two more hikes in 2019 are expected.

The Simply Money Point

These ups and downs in the market we've recently experienced could remain with us for the next few months.

However, the data points to a U.S. economy that is still on firm footing with little risk of recession in the next six months. This should ultimately be good for investors, but we will continue to watch for any signs that point to a recession, as that would imply further market volatility.

 

Topics: Economics

Disclaimer

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Simply Money Advisors), or any non-investment related content, made reference to directly or indirectly will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, this content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained here serves as the receipt of, or as a substitute for, personalized investment advice from Simply Money Advisors. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Simply Money Advisors is neither a law firm, a certified public accounting firm, nor a tax advisory firm and no portion of the blog content should be construed as legal, accounting, or tax advice. Please consult your own attorney, accountant, and tax advisor for legal, accounting, and tax advice. A copy of the Simply Money Advisors’ current written disclosure statement discussing our advisory services and fees is available for review upon request. Advisory services offered through Simply Money Advisors, a SEC registered investment adviser. Insurance services are offered through Simply Money Insurance Agency, a separate entity from Simply Money Advisors. Simply Money™ and the spiral symbol are trademarks of Simply Money IP Holdings, LLC.

Simply Money Advisors

Your trusted financial planning partner and retirement specialist.

Subscribe to Blog Updates

Recent Posts