by Franklin J. Parker, CFA
More earnings! This week we get important profit figures from oil & gas majors, like Chevron and ExxonMobil. Energy earnings are expected to decline by 27%, the largest decline of any S&P 500 sector. Looking at the companies that have already reported — which is only about a third of total companies — and the companies that have yet to report, it looks like earnings will grow somewhere around 4% for this quarter. Again, happy for the growth, but it is well below the growth rate needed to sustain the market rally we’ve seen this year, in my view.
Let’s Connect
It is worth mentioning election-year dynamics now that the election is coming in to view. Historically, in presidential election years, we see some volatility around election day followed by a rally into the end of the year, however actual annual returns are not usualy much different from any other year (2008 being the big exception, but there were other dynamics at work that year). See this week’s chart to see what election years since 1984 look like.
This week we see important data: third-quarter GDP growth, job openings, unemployment (expected to hold around 4.1%), and PMIs. All of this data could move markets, and are all important insights into the status of the business cycle. I will again emphasize that I am cautious, but growing somewhat optimistic if earnings can grow more significantly and unemployment move lower in a meaningful way.
Chart of the Week
This week’s chart — courtesy of JP Morgan Private Bank — is a history of stock markets in every election year since 1984. As we can see in the chart, election years typically have somewhat greater volatility than in normal years, however, we usually see a rally into the end of the year, with a couple of notable exceptions, but those were also years when recessionary dynamics pervade.
While it is true that every time is different, it is helpful to anchor our expectations in history.
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