Tag Archives: Earnings

Second Quarter 2018 Cover Letter Review

On the road to nowhere? Or are we?

While capital markets around the globe may seem subdued, especially compared to last year’s movements, looking beneath the surface there is much going on.

Increased Company Earnings

With the corporate tax cuts, earnings are increasing. Public companies are enjoying terrific earnings growth and logging excellent earnings reports as the year continues. With little movement in capital markets and increased earnings, valuations by most any measure, are becoming less expensive. Also, worth notice in our Q3 Newsletter is a detailed article concerning lowered numbers of public traded companies, a possible source of different valuations moving forward.

Financially Happy Consumer

Broadly, the consumer from a financial standpoint is doing well. A happy consumer, leading to a more freely spending consumer, is an important point for the United States since the Gross Domestic Economy is made up of over two thirds consumer spending. Much of this financial happiness comes before a lower tax burden, likely to be felt by consumers next tax season – again in our Q3 Newsletter there are multiple family scenarios detailing the tax savings due next year.

Interest Rates

Market participants have digested multiple rate increases in stride, unlike times before. With gradual rate increases already occurring in the year, and more expected, normalization of interest rates is occurring without the fears of past. Being the first time in almost a decade to have rate increases, we are on Inverted Yield Curve watch (detailed article again in our Q3 Newsletter) as a possible predictor that rates have moved too far, and a signal of a possible recession. So far this has not occurred.

In closing, our patience theme from the beginning of the year seems to be still best suited.

Have a Great Summer!

John A. Kvale CFA, CFP

First Quarter 2018 Cover Letter Review

In true Groundhog like fashion, Capital Markets, after getting way ahead of themselves early in the quarter, saw their shadow only to turn, run and hide.

Included in the newsletter, which we sent early to give everyone a chance to view and remind of the tax strategies, is an article about the VIX and its reverse brother the XIV. These funny products along with the more recently noted tariff talk has been the recent excuse for capital markets to act like a bashful Groundhog.

The reality is capital markets got way ahead of themselves and needed time to rest. From our perch we would much rather them rest go sideways or even down a little bit, rather than getting WAY ahead of themselves like they did early in the quarter, only to quickly revert and likely overshoot to the downside.

Interest Rate Increase

In this most recent quarter we did just digest another small interest rate increase. Our new Federal Reserve Chairman Powell, looks to continue the gradual increase rates, slowly normalizing short term interest rates, and continuing on the path left by his predecessor Janet Yellen.

Capital Markets have a very unique way of signaling Interest rates have been raised too far called an inverted yield curve. Look for rhetoric about an inverted yield curve soon, as the historic importance and accuracy of this effect are in our crosshairs at this time.

Consumer and Earnings

With an economy that is two thirds driven by the consumer, a happy and spending consumer along with company earnings, which are beginning to digest the new tax reform, lead to a good backdrop.

As we mentioned in our Newsletters and repeatedly at street-cents, this is likely a year we will need patience, we see no change in that view at this time.

Have a great spring, talk to you in the summer!

Sincerely,

John A. Kvale CFA, CFP

Earnings Review … aka 90 day Treadmill … Revenue the missing link, found?

As mentioned Friday, earnings are the key drivers to asset growth and appreciation.  While we do not want to get into the weeds too much on this, continued growth bodes well for continued market appreciation… and maybe growth into the Frothy valuations.. From our fantastic friends at Factset.

Earnings Growth for the Immediate Quarter Looks Great

While a very short term time frame, (3-5 years is our normal time frame) this 90 day treadmill aka earning season chart shows the move upward in expected earnings growth rate. Continued movement at this rate would certainly help us grow into the current valuations.

 

8-4-17 Factset Earnings Growth Q217

Nice move!

EPS- Earnings Per Share

Ok, sure the EPS Earnings Per Share- solid line is moving down as time has passed for this quarter, BUT, the scale is very narrow and the amount of lowered expected EPS growth is only slightly less…

8-4-17 Factset Change in Q317 eps

Before looking too much into this, the lower line is a tiny move due to the frame size!

Revenue/Sales Growth FINALLY?

Be it the Great Recession lingering effects, demographics, economics, world growth or technological advances, Sales or Revenue has been missing during this economic recovery. In reviewing this chart, Energy, bouncing back from a much lower price just a year ago is making up much of the sales increase, however other sectors are chiming in too. Could this FINALLY be the sales increases we have all been waiting for? Compliments to all company managers for cutting expenses in order to maintain profitability, however there are only so many cuts that can be made. If sales increases continue, this would provide much needed breathing room for managers.

8-4-17 Factset Rev Growth 2017

Sales growth has been absent this recovery, making for HUGE challenges for corporate managers

 

Time will tell! So far its looking good!

Have a Great “Growth in Earnings” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
http://www.jkfinancialinc.com
http://www.street-cents.com

 

 

 

 

 

Earnings, a key driver to Capital Markets/Asset Appreciation … Friday

By a lot of metrics, capital markets may be frothy (our term), overvalued, or some even saying a “Bubble” (WAY over used in our opinion) ..
With a long term average of 15, a 24.6 Price to Earnings ratio (Prices divided by cumulative earnings of the capital market), the bluntest valuation instrument MAY be frothy.

BUT if earnings continue to grow, it would be logical for assets to at least maintain their levels and possibly even continue to appreciate, ESPECIALLY if the future looks bright!

Those steep declines represent a corresponding decline in asset prices… note this chart is going back to the 1800’s … we like long term views such as this…

Next week we will review the “here and now” of earnings and growth/sales  as we are in the middle of the 90 day treadmills we call earnings season….

Ahh… that is next week, today is Friday, enjoy your summer weekend !

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
http://www.jkfinancialinc.com
http://www.street-cents.com

Capital Markets Ignore … Short Week Concludes … Friday Tennis Weekend

Capital Markets are the ultimate voting machine. Frequently they are VERY irrational, often times they act temperamental, other times they just ignore and move on.

With the recent flexing of various international military muscles and “Breaking News” headlines, Capital Markets …. and their participants, are just moving on down the road and focusing on earnings … which is really what they are supposed to do. NICE!

Short Week

With the celebration of July 4th on Tuesday, Wednesday felt like Monday, making Thursday feel like Tuesday and today …. Oh Boy … Not really sure what day it is. Friday? Yes..

Friday Tennis Weekendtennis-2042723__340

Wimbledon …. Yes it will be going on this weekend, but a more important Tennis weekend to your present party … a National Tournament in a neighboring state (Travels , all good) .. Win our go home, once again, puts the journey into next week if the former occurs…

Ahhh, that is looking into next week and this is a Friday, smack in the middle of Summer. It goes fast, enjoy, relax and spend time with those special!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com

 

 

 

 

The Importance of Energy Companies to the US Economy

Not so many quarters ago with oil booming and the price of oil going to $144/barrel many including ourselves may have missed the importance of Energy Companies on the US as well as global economy.

Here  we reiterated that we thought the trickle down effect may be much greater than many had once thought.

Another Great View from Visual Capitalist

Take a moment to let this chart digest…it truly is amazing.

If you have been following us long you know we love to mix different opinions especially when they point the same direction- this from Factset..

Without Energy, the S&P 500 earnings would be much less.

Before complaining about that fill up… remember these two items.

Have a Great “Energy Growth” day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com

 

Earnings, the key to Capital Market Growth … Let’s get an update?

The ultimate driver of Capital Markets are Earnings. Yes, we can argue about interest rates, currencies, world political and economic cycles, but all of these events are only important in how they change earnings or the growth there of “Earnings”.

Let’s take a look at early statistics from 2017!

Earnings Via our Friends at Factset

This from Factset, one of our favorite data aggregators in their regular weekly report.

  • Earnings Growth: For Q1 2017, the blended earnings growth rate for the S&P 500 is 13.6%. If 13.6% is the actual growth rate for the quarter, it will mark the highest (year-over-year) earnings growth for the index since Q3 2011 (16.7%).

Looking closely at the following chart, which is TRAILING earnings, forward looking capital market expectations can be seen. The trailing earnings are actually falling over the last few years, but the forward expectations as noted from the first bullet above are expected to climb more rapidly than the past six years.

5-12-17 Factset EPS change and Price

 

So just where are these revenues that are creating accelerating growth coming from?

5-12-17 Factset Geographic Rev chart

P/E or the Price to Earnings is the most blunt way to measure the valuation of capital markets. A high P/E might mean markets are overvalued and need to grow into their valuations, or a reversion to the mean reset to a lower level may be in the cards.

5-12-17 Factset 12 PE ratio V long term

From Factset’s estimates above, the current market P/E is about 22 with a normal of 16-17, undoubtedly higher than normal but certainly no guarantee of an imminent reversion down to lower levels.

If the growth estimates mentioned in the very first bullet come through in 2017, much of this froth may be taken out of the capital markets.

Either way, we have your back via our good friend diversification!

There you have it, a nice ‘Earnings Update” … We will be watching closely!

Have a great “Earnings Update” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com