Is Reporting Season the Catalyst for the US Stock Market to Crash?

By Dale Gillham | Published 05 August 2019

There has been uncertainty in the market in recent weeks, which has resulted in the Dow Jones continuing to trade sideways. That said, overall the market has been bullish in 2019 with the S&P 500 rising over 16 percent and the Dow Jones average rising over 13 percent, with both indices breaking above their previous all-time high. 

Despite a positive reporting season, consensus has been mixed with many investors fearful of a major pullback in the market. While experts are suggesting that the US stock market is over heated and likely to crash in 2019, I would argue differently, given that it has only risen around 9 percent over the past 19 months since 1 January 2018.

In addition, the S&P 500 has only risen around 41 percent in the past 43 months since 1 January 2016. Given this, it is easy to see that the market is not in rampant speculation like we experienced prior to the global financial crisis; therefore, I am confident that the US stock market will not crash. Instead, it is showing signs that the bull run will continue in the not too distant future.

Fed rate cut likely to help the stock market move

The recent rate cut by the Federal Reserve was made in order to stimulate the economy, as it reduces borrowing costs which is good for the bottom line of companies. As a by-product of the Fed’s decision, it’s likely that investors will move back into stocks in the hope of gaining higher returns and income.

No doubt, an influx of investors would support the market and possibly stimulate it in the short to medium term. If the Fed is more aggressive with consecutive rate cuts, we could see a much larger transition into stocks over the coming months, as investors move away from cash.

As I have mentioned in previous market reports, reporting season can increase volatility, causing choppy conditions and uncertainty for investors, and I expect this is likely to continue over the coming weeks. It is for this reason why it is important for investors to always look at the big picture rather than focusing on the short-term noise in the market, as smart investing is a longer-term pursuit, not a sprint. Right now is the time to watch and wait, given that in the coming weeks there will be opportunities to buy.

Reporting season winners and losers

Let’s now look at how the companies performed who reported this week.

Apple released their much anticipated third quarter results last week. Despite their earnings per share being down from $2.34 to $2.18, and revenue from iPhone sales down from the previous year, Apple made up for this as subscription revenue grew 12.6 percent.

IPhone sales were just shy of 50 percent of Apple’s third quarter sales, which is positive news for shareholders, as their subscription revenue is a more reliable and stable than selling smart phones in increasing and competitive market.

Merck also beat analyst expectations last week with its second quarter earnings, and as a consequence, Merk’s shares rose just over 3 percent for the week.

Pfizer released disappointing second quarter earnings last week, which consisted of cuts to sales and earnings forecasts. As a consequence, Pfizer fell heavily, ending the week down over 11 percent.  

What are the top and bottom performing sectors and stocks?

Looking at the sectors in the S&P 500 this week, Real Estate topped the list up over 2 percent followed by Utilities, which just in the green. The worst sectors were Consumer Discretionary and Technology, down just over 4 percent, closely followed by Financials, which was down almost 4 percent.

Looking at the top 100 stocks in the S&P 500, lots of them were in the red although Amgen had a good week up nearly 7 percent. American Tower Group was up over 5 percent and Lilly (Ely) and Co were up nearly 4 percent.

The worst performer was Pfizer, down nearly 12 percent followed by Salesforce down 8.92 percent and Nvidia down 7.93 percent.

Right now, it is time for investors to reassess their portfolios, as there are many good stocks setting themselves up for the next bull run. 

What’s expected to happen in the markets?

So what do I expect in the markets this week. Watch the video to find out.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice.

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