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May 3rd, 2019

Better than Expected Earnings

By PRATTE

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Analysts had estimated a lower than usual earning season. However, the results so far are better than expected. According to FactSet, more than 75% of companies that published their quarterly results exceeded analysts’ expectations. Here is what happened in the markets this week.

Market Brief

A slight rise at the opening on Monday allowed the S&P 500 to reach new highs. Boeing finished the day down 0.46% and Disney gave up 0.44% at the close after a good start to the session following its box-office success of “Avengers: Endgame.” The NASDAQ opened lower on Tuesday, led by Google (-8%) who was down after bad earnings from Alphabet, his parent company. The Dow opened without direction while the S&P 500 started the day with a slight decline. Following the release of solid quarterly results, GE’s share price jumped 4.5%, Pfizer’s gained 2.6%, and Merck moved up 2.5%.

On Wednesday, the stock markets benefited from the good performance of Apple (+ 5%) just hours before the announcement from the Fed of its new monetary policy. The Dow gained 42 points, while the S&P 500 advanced 0.2%, allowing the index to hit a new high. The President of the Fed’s comments shook the markets at the end of the session. Investors were expecting the Fed to eventually lower rates, at least once before the end of the year. However, the central bank said instead that inflation should soon rise again, moving away from lowering the rates.

Investors were still digesting the Fed’s comments at the beginning of the session on Thursday, as the three leading indexes were down. Friday’s session started well for the main indexes, helped by a strong jobs report underlining the economy’s strength.

The TSX closed down 13 points on Monday, led by the material sector who was down 1.12%. The Toronto Stock Exchange continued its poor performance on Tuesday, closing the day down 19 points. On Wednesday, the decline in oil and metals led the TSX, who ended the session down of 77.98 points. Both sectors posted declines throughout the day, energy fell 2.6% and materials declined 1.6%. The Toronto Stock Exchange opened higher on Friday with gains from mining and metals stocks.

Alphabet

Google’s parent company released on Tuesday earnings that were below analysts’ expectations. The company disappointed the markets with its turnover of 36.3 billion as analysts expected a billion more. Its net profit fell by 29%, weighed down by a recent $1.7 billion fine imposed by the European Commission for its anticompetitive practices. The company also announced a 15% drop in advertising revenue, making some analysts fear that advertisers have decided to assign certain expenses to digital rivals rather than Google.

Google’s stock fell by 8% Tuesday when opening, its largest decline in seven years. Investors were frustrated at the lack of response from the company concerning the reasons regarding lower earnings. Investors are also worried about the increase in the company’s expenses. Alphabet’s stock rallied 23% since the beginning of the year.

Apple

The company released this week earnings above analyst expectations. Investors were encouraged by the forecast announced for this quarter, making Apple’s stock go up 5% on Wednesday at the opening. iPhone sales fell by 17% in the last quarter, data that had been anticipated by the markets as Apple had announced back in January a decline in sales. The last months of 2018 were disastrous for iPhone sales, affected by the Chinese economic slowdown and a saturated global market.

According to the company, all of this is in the past and Apple estimates that next quarter’s data will be on the rise. Chief Executive Tim Cook believes that growth will be possible, thanks to lower prices in emerging markets and the end of geopolitical tensions between the United States and China. Apple, however, finished second in the world market in the first quarter. The company is still behind Chinese’s giant Huwaii, who had a better quarter, despite a decline in growth. Apple’s stock is up 27% since the beginning of the year.

Disney

The US company has just completed its best month since 2000 thanks to the box-office explosion of its latest film “Avengers: Endgame,” just months of the unveiling of its new streaming platform. “There’s actually a lot of good news for a long time,” Chantico Global founder and CEO Gina Sanchez said Tuesday on CNBC’s “Trading Nation” segment. “Look at all of the franchises that Disney has bought. You have Marvel, you have Lucasfilm, you have ESPN, you have Pixar films. And now, with Disney+ with 7,500 shows and 500 movies, that’s a lot of content, and they’re producing blockbuster after blockbuster.”

Disney’s stock has rallied 25% since the beginning of the year and its shares have gained 17% since April. Despite losses of nearly 2% on Tuesday’s trading session, its stock continues to remain near its peak of $142.37. A stock to watch just days before its earnings on May 8.

 

Pratte Portfolio Management is a firm registered with the Autorité des marchés financiers (AMF) and the Ontario Securities Commission (OSC).
Intended to provide general information about markets and securities and not to meet your specific needs, this report is the result of the author’s only work. The opinions (including any recommendations, if any) expressed in this report are those of the author only and do not necessarily represent those of Pratte Portfolio Management and do not constitute securities investment advisory activities designed to meet your specific needs.
The information contained in this report is derived from sources believed to be reliable, but the accuracy and completeness of this information can not be guaranteed and, in providing the information, the author and Pratte Portfolio Management assume no liability whatsoever. This information was current as of the date indicated in this bulletin, and neither the author nor Pratte Portfolio Management assumes any obligation to update it or to report any new developments with respect to this information. This report is intended for distribution in jurisdictions where the author and Pratte Portfolio Management are registered for trading in securities. Any distribution or diffusion of this report in another territory is forbidden. The author, Pratte Portfolio Management, its affiliates and their respective directors, officers and employees, and the companies with which they are associated may, from time to time, hold securities referred to in this report.
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