After the last two months’ violent reversal of the “re-opening” trade, the major indexes for U.S. Large Cap, Small Cap, Growth, and Value all stood with YTD gains in the 14-16% range. Yes, a few nimble portfolio managers might have migrated out of “re-opening” stocks in early April and into the “old” Large Cap Growth leadership but the surest route to superior performance has been to avoid what’s become an almost annual pitfall since the Great Financial Crisis: Foreign stocks. EAFE and MSCI Emerging Markets already trail the S&P 500’s 16.0% YTD gain by about 8% and 12%, respectively.
It’s near the year’s mid-point and U.S. equities are doing what they’ve done nearly every year since the onset of the Great Financial Crisis: trouncing their foreign counterparts. The S&P 500’s YTD gain of 13.5% is about 500 basis points better than EAFE’s, and 800 basis points above that of the MSCI Emerging Markets Index.
The June 2016 Brexit referendum kicked off a tortured process for the United Kingdom to leave the European Union. However, the wheels of international politics turn slowly, and the original date of formal withdrawal was set as March 29, 2019. As the calendar rolled into 2019 it became obvious that the March closing date was not going to be met, and concerns mounted over delays, procedures, deal-or-no-deal, a new prime minister, and even calls for another vote.
Our earnings waterfall analysis for the fourth quarter tells a story consistent with the entirety of 2018: earnings growth was fantastic, boosted by the twin drivers of strong sales growth and a lower corporate tax rate. Chart 1 spotlights the quarter’s tally, which produced a healthy sales growth number despite some economic weakening.
So far so good, as sales and earnings numbers reported have been better than expected. Eric Weigel explores newly emerging trends from a number of angles and makes some cautious inferences.