It’s another earnings barrage today as big names like CocaCola, Verion, and Twitter were among the companies beating analyst projections this morning. New home sales on the way.
Earnings from several major companies outpace expectations
On A Cautious Note: Though this year’s rally has been led mostly by cyclical sectors like Industrials and Info Tech, risk-oriented stock funds—especially low-volatility ones—took in a record $8 billion during Q1, Barron’s reported, citing Morningstar data. Low-volatility funds tend to gravitate toward non-cyclical sectors like Consumer Staples, Real Estate, and Utilities, which according to historic data tend to offer investors a bit more protection when markets sag, though past isn’t necessarily prologue. The recent popularity of these low-volatility funds might reflect investor reaction to soft Treasury yields, which often make dividend-paying stocks appear more enticing as their yields come closer to matching government Treasury yields. However, it’s also kind of interesting to see lots of investor money pouring into what some analysts call “defensive” sectors even as stocks approach record highs. Maybe there’s some caution building as investors wonder just how much farther this rally might go as the S&P 500 Index (SPX) nears record highs.
Apple Watch: The end of a legal dispute between Apple (AAPL) and Qualcomm (QCOM) last week puts the spotlight on Apple suppliers just over a week ahead of AAPL’s earnings report. Shares of QCOM, a company that supplies chips for AAPL devices, got a big boost on the news, but investors might also want to check how some other AAPL suppliers are doing so far this year for possible clues into AAPL’s Q1. From a stock performance perspective alone, there see to be some positive aspects. QCOM isn’t the only AAPL supplier stock on the rise recently.
Shares of semiconductor firm Analog Devices (ADI) are up about one-third so far in 2019, and the firm’s fiscal Q1 revenue hit the high end of its guidance. Shares of Jabil (JBL), a company that supplies phone casings for AAPL, are up about 30%. Shares of Texas Instruments (TXN), which also supplies a variety of components for iPads and iPhones and reports earnings later today, are also on a roll. All these companies have other fundamental influences besides AAPL, but it seems worth noting that none are being punished for the slowdown in iPhone sales growth. Maybe consider checking TXN later today to see if AAPL gets mentioned on its call, and we’ll preview AAPL’s earnings here early next week.
Value Check: Despite the recent rally toward all-time highs for the S&P 500 Index (SPX) and falling year-over-year earnings per share for many reporting companies in Q1 so far, stock valuations aren’t looking too stretched vs. historic norms. The forward price-to-earnings ratio for the SPX going into this week stood at 16.8, not much above the five-year average of 16.4, according to FactSet. It’s up quite a bit from lows under 15 late last year, but remains below highs above 18 earlier in 2018. One thing that could keep the P/E from rising much more is if Q1 earnings come in better than expected.
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