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FactSet Earnings Insight: 2019 Second Quarter Earnings in Review

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The earnings season in the second quarter of 2019 came to end after trade and macroeconomic worries had given plenty of investors reason to fear the reports. FactSet Earnings Insights provides some review of the results in Q2 from its FactSet Earnings Insight data sheet. The figures focus on the S&P 500 constituents but paint a good picture of how the sectors fared in the earnings seasons.


Based on the data, S&P 500 companies fared relatively well compared to estimates in the second quarter on the bottom line. 75 percent of companies reported earnings above estimates and just 17 came in below. Technology continued to impress being on the higher end of the sector spectrum as 81 percent report earnings above estimates. Utilities was the only sector that was pessimistic with at least half reporting earnings below estimates. The Energy sector fought off volatile commodity prices to report earnings above estimates 72 percent of the time.


Beats were less likely on the top line thoug…

The Chinese Market Will Never Be the Same

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In 2018, President Donald Trump set out on a path to improve the US economy by challenging the US-China trade relationship which he determined was unfairly tilted against the US. Over the past year, tariffs were implemented by both governments as pressure on unresolved trade negotiations for a new deal built. As of the latest round of tariffs, the US will add an additional 10 percent tariff on all Chinese imports after there was no resolution following the previous round (tariff of 25 percent on $200 billion of Chinese exports to the United States and tariffs of up to 25 percent on $60 billion of US exports to the China).

As expected, the aggressive behavior from both sides have created rifts in the various markets included in US-China trade. As of June, Chinese imports of US goods fell 31.4 percent to just $9.4 billion while US imports of Chinese goods fell 7.8 percent to $39.3 billion. The steep decline in US exports to China has caused US companies that previously did business with…

An Aging, Shrinking World Population

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The United Nations “World Population Prospects 2019” is the 26th edition of the publication combing over 1,600 population censuses and result from 2,700 representative sample surveys. The current edition of this report confirms several things about global demographics. The world population is growing but at a slower rate than usual mostly caused by decreasing fertility rates and an aging population.



Since fertility rates are expected to be a major factor, countries with higher than average fertility are expected to make the largest additions to the population. The UN expects over half of population growth will be caused by 9 countries: the Democratic Republic of the Congo, Egypt, Ethiopia, India, Indonesia, Nigeria, Pakistan, the United Republic of Tanzania, and the United States of America. On the other hand, the UN sees the populations of 55 countries decreasing by 1 percent or more by 2050. The following countries are expected to see decreases of 20 percent or higher: Bulgaria, Lat…

Oxford Energy: LNG Trends in the Second Quarter

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In June 2019, the Oxford Institute for Energy Studies (Oxford Energy) released its "Quarterly Gas Review" reporting on recent trends in the market. Here are some of the highlights of its report:

Low LNG Spot Prices Force Rethink of Oil Indexing

Since the end of 2018, the LNG market has seen an increase in capacity inflating the global supply leading to weakening in the Asian spot price (Anea) and the European spot price (TTF). In addition to the spot prices, Oxford Energy has seen its measure of "LNG tightness," the spread between US Gulf Coast LNG FOB (AGC) price and the Henry Hub (HH) price, drop. Oxford Energy also saw Asian spot prices fall below Europe prices, "something never before seen" in their data from June 2016 to today. Coupled with high Brent crude oil prices, the trends are forcing buyers to reconsider their contracts chained to the price of oil. Oxford Energy thinks that this could "strengthen the [LNG Japan/Korea Marker (Platts)] ind…

Global Liquidity Squeeze Has Weighed on Manufacturing: A BIS Presentation

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On May 14th, 2019, Hyun Song Shin, Economic Adviser and Head of Research at the Bank of International Settlements gave a presentation titled "What is Behind the Recent Slowdown?" His presentation presents an explanation on the global slowdown in manufacturing and trade and how the current economic environment has brought about a slowdown in activity.



Shin points out that manufacturing and trade have been a major drag over the past year with European countries seeing their purchasing managers' indices (PMIs) peak in  the beginning of 2018 and continue downwards into 2019. A similar trend can be seen in the US's PMI which saw its last April value come in below expectations. China's national PMI reading saw a slightly positive recovery in February but still remains relatively depressed like Europe and the US. Shin also points out this trend of weakened manufacturing is secular from domestic areas of growth like services and employment, particularly in Europe.



In a w…

FactSet Earnings Insight: 2019 First Quarter Earnings in Review

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The first earnings season of 2019 comes to a close with 90 percent of companies in the S&P 500 reporting.As FactSet continues to update its "FactSet Earnings Insight" report, here is a snapshot of 2019 Q1. Results were mostly positive as 76 percent saw a positive EPS surprise and 59 percent reported positive revenue surprise. While the current reports were somewhat optimistic, firms see negativity in the second quarter of 2019 as 65 reported negative EPS guidance and only 17 reported positive EPS guidance.

From FactSet
FactSet points out that there were concerns that a strong dollar and trade tensions would be a problem for earnings. Using FactSet Geographic Revenue Exposure data, the report shows that "globally exposed" S&P 500 companies which had more than 50 percent of sales outside of the US announced lower earnings and revenue growth. The trend was significant on the earnings side with the aggregate earnings of globally exposed firms dropping -12.8 per…

Small Businesses Stable in 2018

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The Small Business Credit Survey 2019 recently was released from the Federal Reserve of New York. The report surveyed small businesses in the second half of 2018 regarding various performance indicators and credit outcomes. It comes at a time where global growth concerns from major financial organizations have caused uncertainty in markets as well as hesitance from corporate leadership. In particular, this report documents the responses from 6,614 small businesses with 1-499 employees either full- or part-time.


Small businesses in 2018 reported a general improvement in fundamentals. More than half reported revenue growth in 2018 (57%) and a good amount added workers (37%). That leaves the indices for each of those categories up slightly in 2018. The only performance measure that struggled was profitability. While 57 percent reported operating "at a profit" this number did not grow in 2018. 
Profitability struggles characterized the year as small businesses were forced to gra…

Elizabeth Warren and Cancelling Student Debt

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As the 2020 election nears and Democrats begin their campaign to take down the incumbent President Trump, the candidates are presenting their agendas to the American public. One of the most recent policy declarations was Elizabeth Warren's introduction of student debt cancellation. The idea is simple. The Massachusetts senator wants to forgive any outstanding student debt for any American citizen. The policy would be massive and have significant consequences for the U.S. economy. The effect is presented in a February 2018 report by the Levy Economics Institute of Bard College, "The Macroeconomic Effects of Student Debt Cancellation."


The student debt situation in the United States is dire. In 2011-2012, seniors graduated with, on average, over $26,000 in debt. As if the first quarter of 2016, $1.35 trillion of student loan debt was outstanding, up 40 percent from 5 years before. As the cost of education has risen by 156 percent between 1990-1991 and 2014-2015, financing …

U.S.-China Trade Issues: The Congressional Research Service Keeps Trade Talks in Focus

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Updates on the U.S.-China trade negotiations have been progressing, but reporting on that progress has been far from transparent. On April 8th, 2019, the Congressional Research Service published a short report on "U.S.-China Trade Issues." The report continues to nail down the reasons why the economic squabble continues between the two largest nations in the world. 


President Trump has cited his desire to shrink the trade deficit between the United States and China. In 2018, that deficit reached the highest it's ever been at $419 billion. The report suggests that economists could explain a rising deficit not as an unfair trading relationship, but as a result of "low U.S. domestic savings relative to total investment." Of course, this could be a result of rising rates, but that trend might be temporary.
In addition to a general "unfair" trade relationship, the current administration sees a problem with Chinese cybertheft and the stealing of intellectua…

The Tamed Asian Tigers

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The Asian Development Bank (ADB) released its most recent version of the Asian Development Outlook. The economists had a lot to say about the moderation in Asian growth; in particular, what they see as China's expectations start to get milder. For the overall region, the ADB sees growth moderating from 6.4 percent in 2018 to 6.2 percent in 2019 and 6.1 percent in 2020. As for inflation, ADB economists suggest the 10-year historical average of 3.2 percent will be undercut for the next two years with forecasted inflation around 2.5 percent (similar to the U.S. Federal Reserve's inflation target of 2.0 percent).


The stories told by the ADB are not of sharp deceleration but gradual deterioration. China is expected to slow from 6.8 percent in 2018 to 6.3 percent in 2019 "as restrictions on housing markets and shadow banking continue and as the trade conflict with the US weakens exports." In Southeast Asia, growth should be remain at around 5 percent this year as stronger …

The Chinese Economy is Transforming

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A new Chinese economy has been a looming threat over the past few years. It has slowly drifted away towards the accelerated, variable pace of an emerging market economy to move towards a mature service based economy centered around consumption. In the World Bank's China Economic Update for December 2018. The economic data in the report shows how the change is progressing and how its reacting to the current trade dispute with the United States.

The most troubling aspect of the shift is the slowing of Chinese GDP despite the gradual pace. The Chinese government already projected lower numbers for the 2019 year, but the World Bank report shows that this is no sudden adjustment. "GDP growth slowed to 6.5 year-over-year in the third quarter from 6.8 percent year-over-year in the first half of 2018 and 6.9 percent in 2017," as mentioned in the report.



An interesting aspect of the slowing GDP is that the deceleration is mostly caused by lower exports. Net exports weighed on GDP…

Prolonged Tariff Dispute Threatens the Farming Industry: Lessons from the 1980s

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President Trump's protectionist trade policies have been one of his more contentious economic policies garnering resistance from critics of all political leanings. The tariff dispute between the United States and China is the most well-known consequence of these policies and has resulted in economic growth worries. The U.S. stock market sat on the brink of a full-on bear market at the end of 2018 but recovered sharply in the first two months of 2019. Observers continue to monitor negotiations between top U.S and Chinese conveys that have yet to produce a decisive trade agreement.

Soybean and corn farmers are two groups within those observers that are watching closely in hopes of seeing their markets improve. According to Reuters, USDA Chief Economist Robert Johansson reported that “under the trade dispute, exports to China alone have plummeted by 22 million tonnes, or over 90 percent.” The dramatic reduction in Chinese exports so far has weighed on the latest 2019 projections whic…