Awaiting on China

The market opened the day lower and turned around after comments from President Trump on China and trade deals.  His words echoed what I said on Mornings with Maria, that it would be the key to moving this market.  Not only did Trump’s comments on China and trade spark a rally, but his take on the stock market helped set the tone for the day. 

“The stock market is up 35% since the election and now I think they’re waiting to see what will happen with trade. We are going to have some incredible trade deals announced. My people are coming back right now from China and we will be doing something one way or the other with respect to what’s happening in China.”

According to Factset, as of April 27, 2018, 53% of S&P 500 companies have reported earnings results for the first quarter 2018.  On average, companies are reporting earnings 9.1% above estimates and sales are up 1.7% above estimates.  There are several factors contributing to companies beating estimates by such a large margin.  Increases in productivity through technology advances, revised lower taxes and a weak U.S. dollar.    

Savings from the tax plan will hopefully be reinvested in capital spending, which can lead to further productivity advances.  Although the largest portion of the tax savings may be a onetime benefit from repatriation, the capex spending can lead to increased longer-term productivity.

Earnings have been rising as stock prices have declined since the beginning of the year.  This has lowered equity valuations when analyzed through the price earnings ratio. 

The latest Baker Hughes oil rig count in the U.S. went up by 11 to 834, and it is up 131 from the prior year.  WTI is currently up 1.9% to $69.74 as we approach the psychological $70 number as markets wait for the White House decision on May 12 regarding possible new sanctions against Iran.