First Quarter Earnings Season Commences Today

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By: Kent Engelke | Capitol Securities

First quarter earnings season commences today with the release of several large money center results. S & P 500 profits are expected to increase by 18.4%, the greatest gain in seven years because of tax cuts. To write the incredibly obvious, market volatility could increase by any significant surprises.

Commenting about volatility, equities were posting modest gains on speculation that tensions in the Middle East won’t escalate into a destabilizing conflict. Equities gain further impetus following headlines that Trump weighs rejoining TPP and the Administration’s increasing confidence the trade issue with China will be resolved.

Commenting about oil… oil closed higher by 0.5% and is up about 7.5% for the week. Crude stands at the highest level since December 2014 and for the first time in many years a small geopolitical premium is now becoming embedded in oil prices. Will this premium increase?

Yesterday, weekly jobless claims were released. Claims are now under 300,000 for a record 162 consecutive weeks, the longest stretch on record dating back to 1967. Many are perplexed that wage gains remain muted. I will argue a major reason for the lack of wage pressure is the labor participation rate of 62.9%, considerably lower than the 35-year average of 65.5%. It peaked in January 2000 at 67.3%.

There is wage pressure on either end of the labor spectrum, but not in the middle. I believe if the LPR increases closer to its long term average, overall wages will increase.

What will happen today?

Last night the foreign markets were up. London was up 0.13%, Paris was up 0.44% and Frankfurt was up 0.72%. China was down 0.66%, Japan was up 0.55% and Hang Sang was down 0.07%

The Dow should open nominally higher. The 10-year is unchanged at 2.84%.

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