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Fourth quarter earnings season is accelerating.  A quick and obvious observation is that if the company exceeds expectations, shares rise and vice versa.  Leuthold Group writes earnings day turbulence in individual companies late last year reached the highest since it began tracking the data in 1999.

Bank America writes that analysts have near unanimity as to projected results.  It was at a record level of tightness headed into the third quarter season during which equities lurched and it has tightened even further headed into the current reporting season.  It is perhaps “group think” on steroids.

To write the obvious big moves are easier to take when they are up.

Simplistically speaking nobody wants to make an outlier call because if you are wrong, your career can be over; hence the volatility Leuthold quantifiably observed perhaps the result of technology based mono variable momentum trading.

Analysts have been cutting profit estimates across the board and now expect fourth quarter earnings growth around a 12% pace, half the rate of the third.  The deceleration will worsen this year with profits increasing no more than 4% in the first two quarters.  As noted several times, for the second consecutive quarter consensus is expecting the growth rate for value will be double the rate of growth.

Late yesterday afternoon Bloomberg wrote “the upcoming reporting season will likely be the first of three quarters of weak year over year tech EPS expansion—3% in 4Q followed by growth decline for the first half of 2019.”  Wow!

Speaking of which, the first of the FAANG’s, Netflix, posted results that were short of expectations.  How will the markets respond especially after a 52% three week advance?  At the time of this writing, shares are down about 3%.

Commenting further about the markets, the S & P 500 advanced about 0.75% on conflicting trade news.  The 10 year was off 7/32 and oil was flat.

Last night the foreign markets were up.  London was up 1.57%, Paris up 1.72% and Frankfurt up 1.73%.  China was up 1.42%,  Japan up 1.29%  and Hang Sang up 1.25%.

The Dow should open nominally higher on trade optimism. The S & P closed yesterday above the pivotal 50 day moving average for the first time since early December. Oil is higher by 1.5% as OPEC is cutting production quicker and deeper than expected.   The 10-year is off 4/32 to yield 2.77%.

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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.