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Monday April 1, 2019

// April 1st, 2019 // Comments Off on Monday April 1, 2019 // Daily News

Goldman: Earnings outlook is getting grimmer by the day, so hide out in companies with big margins

Headed into the first-quarter reporting season, investors are bracing for the first earnings decline for S&P 500 firms in more than two years.
In such a slowdown, investors should focus on companies with high and stable gross margins, also known as high pricing power, according to Goldman Sachs.
“As margin pressures mount, investors should focus on companies that have demonstrated the ability to maintain margins through pricing power,” says Goldman chief U.S. equity strategist David Kostin.

CNBC.com

Things are about to get dicey after the stock market’s record quarter.
Investors are bracing for a drastic earnings slowdown headed into the first-quarter reporting season — Wall Street analysts are projecting a 3.9 percent earnings decline for S&P 500 firms in the first quarter, the first year-over-year decline since the second quarter of 2016, according to FactSet. That is a 7.2 percent drop from the previous quarter, the largest cut in three years.
In such a slowdown, investors should focus on companies with high and stable gross margins, also known as high pricing power, according to Goldman Sachs.
“All 11 sectors have experienced negative 2019 EPS revisions since the start of the year,” Goldman chief U.S. equity strategist David Kostin said in a note on Saturday. “As margin pressures mount, investors should focus on companies that have demonstrated the ability to maintain margins through pricing power.”
As slowing demand and rising costs put pressure on companies, it becomes harder for them to generate additional sales growth. In fact, net margins for the S&P 500 companies are expected to fall to levels unseen since the financial crisis, Goldman said. This is why investors should be hiding out in stocks of companies that tend to be less affected by rising costs.
“Executives cautioned investors on margins as they reported 4Q 2018 earnings, citing both trade tensions with China and the continued tightening of the labor market as factors contributing to margin uncertainty in 2019,” Kostin said.
Companies with big margins have a track record of outperformance in periods of profit margin pressure. They have beaten the market since at least 1985 whenever there was an expected margin decline, the bank said.
Goldman screened stocks for high pricing power by examining the level, variability, and recent momentum or company gross margins relative to sector peers. It identified Nike, Home Depot, Coty and Adobe as companies with high pricing power.

Today’s Inspiration

The Fast Pace of Life

We really do live in a time-crunched world; just about everything we do seems to be urgent. We live under incredible pressure and run from one thing to the next—to the point that we may neglect the things that are really important in life: family, our health, God, and building up our spiritual lives.

The truth is, we cannot handle life apart from God. We cannot handle the pressure, the confusion, and the stress without Him. Our marriages will suffer, we will experience financial pressure, and our relationships won’t thrive if we do not study God’s Word and take time to pray.

But there is good news to be thankful for—God will strengthen us and enable us to handle life peacefully and wisely if we start praying about things instead of merely trying to get through the day. God will renew our strength and enable us to handle life and not be weary (see Isaiah 40:31).

Prayer Starter: Father, I am so thankful that You give me peace and rest even in the midst of a busy life. Help me to lean on You today and use wisdom in setting my schedule. You are the strength of my life, and I totally depend on You. In Jesus’ Name, Amen.

Monday March 25, 2019

// March 25th, 2019 // Comments Off on Monday March 25, 2019 // Daily News

Financials are back in correction, and it could get much worse

CNBC.com

Banks are coming off their worst week since 2011.
The KTE bank ETF fell 9 percent last week, while the broader-based XLF financial ETF tumbled nearly 5 percent. Bank stocks are now in a bear market, having fallen more than 20 percent from a June peak, while the financials tumbled into a correction with losses of 13 percent from their 52-week highs.
It could get even worse for the financials sector, says Craig Johnson, chief market technician at Piper Jaffray.
“We’re still underweight financials at this point in time,” Johnson said Friday on CNBC’s “Trading Nation.” “We’re still making a series of lower lows and lower highs in here, and from our perspective the recent price action since December has been nothing more than a relief rally.”
The XLF ETF had rallied 15 percent since hitting its bottom in late December. Some of its individual components have fared even better — Citigroup is up 26 percent, American Express has gained 23 percent and Bank of America has added 19 percent.
“We’re not interested in the banks. You look at a lot of these individual company charts, again they also look like relief rallies, and they look like they’re about to roll over, and the yield curve is still very concerning and a headwind for the banks,” said Johnson.
Michael Binger, president of Gradient Investments, is also steering clear of financials.
“The underperformance of the banking sector has really started to accelerate since the Fed went dovish,” Binger said Friday on “Trading Nation.” “Banks make money by making loans, so if the Fed is seeing a weaker economy possibly, then loan growth is going to be tough.”
At its meeting last week, the Fed sounded a dovish call by suggesting it may not raise rates at all this year. The central bank has been cautious in tightening monetary conditions too much in the face of slowing global growth.
“The spread they’re going to make on the loans they can give out or will give out is going to be compressed, so banks are going to struggle and be quite challenged for growth,” said Binger.
The sell-off in financials picked up speed on Friday after the yield curve between the 3-month and 10-year Treasury note inverted for the first time since 2007. An inverted yield curve squeezes bank profitability and is seen as a recession indicator.
“We will stay underweight the classic banking sector. We are going to be very selective in the stocks we pick and we would much rather play in the fintech area — companies like Global Payments, PayPal, Visa and Mastercard,” Binger said.
Each of those companies have rallied by double digits in 2019, more than double the gain on the XLF ETF.

Today’s Inspiration

MARCH 25, 2019

God Will Fight for You
– by Joyce Meyer

There are times in our lives when we feel like we are up against what seems to be an insurmountable enemy. Things appear to be hopeless, and we are in a fight we think we can’t possibly win. During times like these, we need to remember one very important thing: The battle belongs to the Lord.

You and I are involved in a spiritual war in the unseen realm. God’s Word makes it clear that we will have times of trouble (see John 16:33). But the Bible also makes it clear that no matter what we may be facing, God has a plan. His plan for us is to be victorious—even when our problems feel overwhelming.

You may be struggling with fear, a bad habit, relationship issues, or even a life-threatening disease. Whatever it is, when you give your battle to the Lord, you are in a position to win. Second Chronicles chapter 20 is one of my favorite passages of Scripture. It’s the perfect blueprint for how to respond when trouble strikes.

At the beginning of this chapter, we find King Jehoshaphat of Judah and his entire army surrounded by their enemies, trapped and outnumbered. Suddenly, without hardly any warning, Judah’s army was faced with an impossible situation and seemingly no solution. Sound familiar?

There are three very important things Jehoshaphat did. First, he admitted that he had no might to stand against his enemies. Second, he admitted that he did not know what to do. And third, he said that their eyes were on God. These three things put Jehoshaphat and the people of Judah in a position for a miracle.

In a similar way, we need to realize that we are totally dependent on God to solve our problem and fight our battles—we can’t do it on our own!

Prayer Starter: Lord, I understand there will be times when I face troubles and difficulties. Help me to let You fight my battles, trusting You to show up in my situation. In Jesus’ name, Amen.