The Weekly Summary
You know it's been a wild couple of days on Wall Street when the monthly unemployment report is at best the fifth-biggest story of the week. The good news is that that closely watched gauge of the U.S. labor market (and by extension the consumer economy) remains roughly as robust as we expected. While Corporate America has gotten a little cautious about hiring more people until resolving questions about the global trade situation, mass layoffs remain rare enough to sustain full employment.
And with peak 2Q19 earnings now behind us (33% of the S&P 500 reported last week), it's clear that most companies have no reason to make dramatic payroll cuts. The numbers may not be great, but with the market as a whole tracking only a 1% earnings decline, they're far from awful or even distressing. If we were weighing in on the S&P 500, we wouldn't sell this quarter. At worst we'd holding on for better times later in the year or at worst early 2020, which is now not far away.
Apple was the biggest earnings headline of the week and its numbers weren't bad. Tim Cook worked his magic and engineered a slight revenue uptick where we thought iPhone sales would be too weak for other units of the company to pick up the slack. Investors cheered, at least initially.
However, the next afternoon the Fed came around to make us all forget about Apple. While some wanted a deeper rate cut or a promise of more loosening moves ahead, we aren't greedy. Even rolling rates back to September's level is a rare gift that the central bank rarely bestows on Wall Street, especially when the underlying economy is this strong. Lucky for us, inflation remains dormant and the dollar is if anything too strong for exporters like Apple to comfortably tolerate. We can afford a little rate relief. Now we have it.
On Wednesday, we thought that would be the biggest headline of the week and that we were looking at another rally. But then the trade war escalated, with reciprocal promises of massive tariffs on products coming out of China and going in. While it may simply be another negotiating tactic, we can't count on it. Either way, stocks dropped enough on Thursday and Friday to push the S&P 500 down 3% and leave the BMR universe with similar losses.
It's far from the end of the world. Our stocks are still up 35% YTD and the way the losses were highly correlated without respect to sector or economic sensitivity makes us think this is more of a short-term gesture of frustration than a long-term slump. So far trade hasn't come up a lot in corporate conference calls. They're more worried about the dollar, which the Fed can correct and no tariff can make worse. The fundamentals are getting better. Headlines come and go.
There’s always a bull market here at The Bull Market Report! Our subscribers are still swimming in great 2Q19 earnings reports (one more week!) and when Wall Street gets back to work, we suspect our stocks will once again be ahead of the curve. For now, it's all about China. Hang in there.
Key Market Indicators
BMR Companies and Commentary
The Big Picture: A Great Season
We’ve talked a fair amount in the last few weeks about how BMR stocks are keeping earnings growth alive in an environment when fundamentals for the market as a whole have stalled. This week gave us even more evidence that on the whole, our recommendations are both robust enough to keep the cash flowing and resilient enough to weather the factors that have become a drag elsewhere.
Thanks to dramatic year-over-year expansion at two of BMR stocks that only subscribers will recognize, our universe is on track to deliver 30% earnings growth this quarter. We don’t want to brag or make it appear like we’re fudging the numbers, but even factoring out those two huge trends (respectively 300% and 600% above last year), we’re still looking for 13% more profit than we saw a year ago.
Admittedly, we’re factoring out companies where year-over-year comparisons are meaningless, often because they’re still burning cash or nudging above breakeven. People who try to weigh a loss against a profit in percentage terms are really just juggling abstractions.
But where the math makes sense, we have a lot to work with. Taking just the BMR stocks that were profitable last year and are still profitable today, it will take at least a 13% rally to keep multiples from actively declining. And since we know investors are willing to buy these companies at these valuations, more earnings translate to rising stocks. Contrast that to the S&P 500, where all the upside surprises so far this season haven’t been enough to generate positive growth.
While we aren’t dead set against stocks with fundamentals going in reverse (as long as the deterioration is transitory and there’s a good reason), we’d much rather have the trend on our side, especially when the market as a whole is still this close to record territory. Experience tells us that other investors will inevitably agree. Besides, even on stocks like mighty Apple (AAPL: $204, down 2%) where profits are temporarily depressed, the results are generally better than anyone suspected a few months ago.
We’ll calculate our multiples when the season is over and we suspect the growth-adjusted results will argue that BMR stocks still have room to rally without straining the historical limits. But first there’s one more big week and a few stragglers beyond that to see.
NOTE: In our weekly paid subscription Newsletter, we do between 5 and 7 SnapShots and also support regular Research Reports. The last three stocks we recommended are already up 5% apiece. Plus, we have the Weekly High Yield Investor, whereby we discuss the 17 stocks in our High Yield and REIT Portfolios.
And to top it all off, we send News Flashes each day during the week. Got a question about any stock on the market? We'll answer. So if your favorite stock reports earnings or there is significant news, you will hear about it here first. If you want the whole picture, join the thousands of Bull Market Report readers who are making money in the stock market and subscribe here:
It’s only $249 a year, and later this year we will be raising it to $499 or even $999 a year, it is just THAT valuable. But we will lock you in for life at this lower price.
Todd Shaver, Founder and CEO
The Bull Market Report
Just $249 a year, soon to go up to $499. But you are guaranteed the SAME PRICE forever.