They always say look at Dr Copper to understand the heartbeat of the economy- from the chart below, copper does not look too flash and actually portends tough times ahead.
We can all agree that at the end of the day, earnings growth dictates where share prices will go. If not for lower rates that make the discounted value of future cashflows more valuable, share prices would have fallen more for the fundamentals shown - but as you can see with liquidity seizure in times of crisis, bank cost of funds can rise very quickly (remember in 2008 GFC, bank term deposits were higher than loan rates because offshore borrowing costs jumped significantly to allow for increased risk premium) and rates can suddenly shoot higher ...you know what comes next.
The Wall Street Journal reports:
‘Investors counting on a corporate earnings rebound in the second half of the year are risking disappointment.
‘Wall Street analysts have cut their third-quarter profit estimates in recent weeks, painting a bleak picture for investors already grappling with a simmering trade war, pockets of economic weakness and ominous signs from the bond market.
‘Despite this week’s partial reprieve from the Trump administration, the latest round of tariffs on Chinese imports compound the problems already facing many companies and threaten to stifle their profit margins. Especially vulnerable are manufacturers, miners and retailers.
‘At best, earnings across the companies in the S&P 500 will grow 1.5% this year, FactSet projects, far short of estimates for growth of more than 6% that analysts initially forecast in January. Worse, a few analysts predict earnings could end up contracting for 2019 as a whole.’
Plummeting bond yields and an accommodating Fed have held the US market up this year. But if a slowing economy eventually hurts company earnings (and it will) the market will likely continue to sell off.
