The Perfect Day

Jul 27, 2018   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

It was an earnings deluge this week as roughly one-third of the S&P 500 reported quarterly results.  So far, 87% of corporations that have reported earnings have exceeded Wall Street estimates, with FactSet now forecasting Q2 profits will be up 21% from a year earlier.  Having said that, investors are generally forward looking and will be watching closely for forward guidance.  As we discovered this week, those companies that reduced guidance took big hits.  One has only to look at Facebook and Twitter for the fallout.  Expect more landmines over the next couple of weeks.

Despite a few companies that had big misses, the majority are meeting expectations.  To a large extent, corporate tax reform has been a huge success in so far as companies’ earnings growth.  Second quarter Gross Domestic Product (GDP) was released today and while slightly below forecast, it came in at a sizzling 4.1% year-over-year.  For the sake of comparison, the average growth rate during an expansion is 3% which has been elusive for a very long time even during the current recovery.  This quarter benefits from a timing sweet spot, coming in after the deficit-busting cuts trickle through the economy, but before the effects of current tariffs are truly felt.  Some economists argue recent policies are simply pulling forward demand and the current growth trajectory is not sustainable.  Others argue that a rather large inventory build accounts for a disproportionate percent of the growth in Q2.  Either way, we expect Q2 to be the high-water mark for the year with GDP growth slowing to 3% in the third quarter and 2.5% in the fourth as the effect of tariffs take hold.

In other news, Boeing reported this week a growing concern over a pilot shortage.  The company projects demand for pilots will rise to 790K over the next 20 years.  Its projection is double the current workforce.  There is vigorous debate over the causes with many accusing the industry of making it increasingly difficult and expensive to become a pilot while offering entry-level pilots poverty level wages.  Ironically, the industry appears to be moving towards lowering the requirement from two pilots in the cockpit to only one, perhaps considering the dwindling number of pilots.  It should also be noted that the self-driving car movement isn’t the only form of transportation trying to remove humans from the equation.  Some airlines are now beginning to take more seriously the idea of autonomous airplane flight.  I guess time will tell.

While we’re talking about transportation, California always seems to be ground-zero with regards to new technologies and regulations.  In that vein, it had proposed increasingly rigorous fuel emission standards some years ago.  These standards went well beyond what the federal government had imposed and presented a dilemma for automobile manufacturers.  After all, it wouldn’t be practical or profitable to make one set of cars for California and another set for the rest of the country. This week the Trump administration challenged the state of California’s right to set its own fuel emission standard.  The EPA will attempt to pull back the waiver granted to California as part of the Clean Air Act and reset the standard back to the 2020 level of 35mpg per manufacturer fleet.

One last bit of news made me chuckle as it seems global commerce is not always as straightforward as one might think.  President Trump’s desire for Europe to buy more natural gas from the U.S. will face a reality test, as Russian gas is significantly cheaper and U.S. exporters may not want to rush to Europe since their gas fetches much higher prices in Asia.  One energy analysts put it this way, “Where gas goes is just dictated by dynamics of the global gas market and it’s not clear to me what any European Union policy maker could actually do to change that.”

In closing I want to share with you a study I came across this week.  The premise of the study was to discover what makes up the perfect day.  Of course, the answer can be quite different from person to person, but it sought to find out common characteristics of an ideal day for the average person.  There were plenty of characteristics, but the main ones included waking up at 8:15am with a sunny, spring-like weather forecast with temperatures reaching 74 degrees, and respondents being able to enjoy three hours outside.  They see themselves spending four hours with their family and three hours with friends, then coming home and hopping on the couch where they’d spend a few hours watching television.  When all is said and done, the perfect day would end with bed at 10:50pm.  Using these characteristics, researchers concluded the average person has only 15 ‘perfect’ days per year.  My goal is for more than the average.  How about you?

July 27, 2018

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