TSP

Corporate earnings announcements generally have passed a relatively low bar set for them, sending the C Fund higher recently, but an ongoing trade dispute with China and an inverting yield curve should add turbulence.

Lyn Alden

Major corporations in the C Fund continued to report second quarter earnings last week, and the overall results are coming in above consensus. The S&P 500, which the C Fund tracks, closed at a new all-time high on Friday:

Chart Source: Google Finance

Approximately 77% of the companies that have reported quarterly earnings so far in the C Fund this season have beaten consensus analyst estimates, and 82% have beaten or matched. Only 18% missed estimates. The healthcare sector has been the most consistent out-performer this season:

Chart Source: FactSet Insight

However, the bar was set quite low. Although most companies are beating earnings expectations, those expectations were for earnings declines rather than growth. The average earnings report in the C Fund this season was 2.6% lower than the same quarter from 2018:

Energy and materials producers have been hit hard by declining commodity prices. Oil is at a lower price currently than it was a year ago, and so are other materials such as coal and copper.

Industrial companies have been pulled down by a cyclical decline in manufacturing. The global manufacturing purchasing manager’s index, one of the key measures of growth and contraction in the manufacturing sector, has been on the decline lately:

Chart Source: J.P. Morgan and IHS Markit

The healthcare sector has been the big out-performer this season, both in terms of beating expectations and the absolute level of their growth. Financials have also done well, although their performance has mainly been based on share repurchases. Real estate and communications have also delivered above-average performance this quarter.

Notable Earnings

Alphabet, the parent company of Google, reported sales and earnings results above expectations last week, causing the stock to rise sharply by over 9% on Friday. Alphabet is already the third-largest component of the C Fund and by far the largest component of the communication services sector, so a 9% move up had a significant effect on the overall market. Thanks to the jump in the stock price, the company added over $75 billion to its market capitalization in one day and is now worth over $860 billion.

Tesla’s stock price dropped over 12% on Thursday following a weaker-than-expected quarter. Specifically, they were unprofitable with a wider margin than consensus expectations. Tesla is one of the largest components of the S Fund.

Boeing shares slid by over 8% last week after reporting their biggest ever quarterly loss. The company’s B737 Max jet continues to be grounded worldwide due to safety problems, and customers are not ordering any more of them until Boeing fixes the issues. The company is one of the largest in the C Fund although its market capitalization has now dipped below $200 billion.

United Parcel Service (UPS) shares climbed about 16% last week due to posting quarterly results that beat expectations. Strong online sales drove considerable growth for them this quarter.