US Markets Still Trading around All-Time High

By Dale Gillham | Published 29 July 2019

Earnings season continued last week with FAANG stocks taking centre stage and stealing the spot light over the banks who were the focus the prior week. As a consequence, the US Markets are still trading around the all-time high despite reporting season. 

Facebook, Amazon and Google reported second quarter earnings and so far the results have left investors uncertain about the future outlook of the market, especially given that it is trading at all-time highs.

Volatility is expected during earnings season, so it’s best not to make knee jerk reactions during this period. As I have said many times, my outlook on the market is positive, which I discuss shortly. For now, let’s take a look at how the stocks performed for the companies that reported last week.

Who were the top and bottom performers during reporting season?

Amazon’s record run came to an end with its second quarter earnings results slightly off the mark, which came in $0.35 lower than analysts’ expectations. That said, reported revenue came in above expectations at $63.4 billion compared to last years $52.9 billion.

Amazon’s investment in next day prime delivery services has impacted the company’s margins, however, the CFO believes this short term pressure will be alleviated over the longer term, resulting in more frequent purchases and ultimately higher revenue.

Right now the jury is out on this, as Amazon is facing increasing pressure from other online retailers such as Alibaba along with traditional brick and mortar stores who are fighting back and are becoming better, and bigger in their online efforts.

Alphabet or Google, on the other hand, smashed expectations last week after disappointing investors last quarter, which saw their shares rise 9 percent. Earnings per share came in at $14.21, which was around 25 percent above expectations. Google also announced it would be repurchasing $25 billion worth of shares, which is always good in supporting a stock’s price.

Facebook reported better than expected second quarter results with revenue coming in at $16.9 billion, which was $400 million above estimates. Earnings per share came in at $1.99, which was higher than the expected $1.88 estimate.

Daily and monthly users where as expected, with 1.59 billion people using the social media app each day. Facebook shares have risen over 50 percent this year, despite last year’s Cambridge Analytica data scandal, which resulted in a $5 billion fine for the company.

All but one of the FAANG stocks have reported now, and this week all eyes will be on Apple’s third quarter earnings. Potentially we may see three companies valued at over $1 trillion in market capitalisation, with the others being Amazon and Microsoft.

It was not a good week for Industrials as Boeing had its worst ever quarter after releasing second quarter profits last week. Profits where significantly hit following the 737 crisis earlier this year. Boeings revenue dropped 35 percent to $15.8 billion, which was $8.46 billion lower than last years $24.26 billion.

Boeing said that potential production halts could happen as the company deals with trying to get the 737 Max’s off the ground, which is estimated to happen early in the fourth quarter.

Caterpillar’s earnings were also disappointing on weak China sales. The company also flagged rising costs as an issue, which saw the stock sold off heavily last week. Profits suffered this quarter largely due to restricting costs, higher material prices and a $70 million tariff bill.

Caterpillar expected profits to be at the lower end of guidance for 2019 but on a positive note, Caterpillar retained its earnings outlook.

Visa and Paypal also reported last week, with Visa’s earnings above expectations. Despite this, the stock fell over concerns about cuts to future earnings outlook. It is also likely that the decline is due to shareholders selling the stock to lock in profits given Visa’s performance over the past year.

Paypal, on the other, hand missed guidance with revenue coming in below expectations, which saw its shares fall 2.6 percent.

While there is a lot happening in the market, right now it’s important to take a step back and look at the bigger picture. Just because a company rises, or cuts guidance does not mean it will not perform in the coming months or years.

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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