Ticker Tape: A Financial Briefing by Baruch College’s Investment Management Group
Equities in the U.S. were expected to outperform other major asset classes in 2018 as they were to benefit from synchronized global growth and an increase in profits due to the Tax Cuts and Jobs Act passed in 2017. While major U.S. equity indices spent the majority of the year in the green, their gains were erased in December because of a combination of factors. Factors included investors’ expectations of a weakening global macroeconomic backdrop and an unpopular decision by the Federal Reserve to increase their federal funds rate between 2.25 percent and 2.50 percent.
The federal funds rate is a measure used by the central bank that controls the country’s money supply and in turn, can influence growth. With increasing interest rates, investors were worried that the Federal Reserve was raising rates too quickly and that the economy would overheat.
As a result of these developments, major equity indices posted their worst year in 10 years with the S&P 500 falling 6.2 percent, the Dow Jones Industrial Average falling 5.6 percent and the NASDAQ falling 4 percent.
In comparison to 2018, 2019 is a year in which analysts expect growth in corporate profits to slow as they have reaped the benefits of the tax cut and will continue to suffer from an increase in expenses due to the ongoing trade war between the U.S. and China.
However, with approximately 50 percent of S&P 500 companies already having reported 2018 fourth quarter earnings, major U.S. equity indices have been able to bounce back from their December lows as growth in corporate profits have been better than initially expected.
For January, the S&P 500 gained 9.16 percent, the Dow Jones Industrial Average gained 8.11 percent and the NASDAQ gained 10.23 percent.
Although each sector had seen certain companies that failed to meet analysts’ earnings expectations, the following two retail companies have posted some of the strongest earnings for the quarter.
Estée Lauder Companies is one of the world’s leading manufacturers of quality skin care, makeup, fragrance and hair care products that are sold in upscale department stores.
Currently, the company offers these products under brand names such as Aveda, Bobbi Brown and Tom Ford Beauty. In recent years, the company has been able to benefit from an increase in spending toward discretionary goods as well as an overall trend in which consumers have become more concerned about their image.
On Feb. 5, Estée Lauder Companies released its earnings for the quarter, in which investors were reassured that the company continues to benefit from the same trends it did a year ago.
For the quarter, the company reported earnings per share of $1.86, which is better than last year’s earnings per share of $1.52 and Wall Street’s estimate of $1.54 for the quarter. Additionally, the company’s revenue was reported to be $4.01 billion for the quarter in comparison to the $3.92 billion expected by analysts.
The company’s better-than-expected performance was driven by a strong holiday season, increased sales from premium products and solid results from its Asia-Pacific operations. As a result of this strong quarter, the company has raised its outlook for the first six months of the year and had experienced a 12 percent gain on the day.
The Clorox Company is a $19.6 billion company that manufactures and markets consumer and professional products under notable brand names such as Clorox, Tilex, Glad, Burt’s Bees and Kingsford. As a company that predominately offers household consumer products, Clorox tends to perform best in times of economic slowdown as its products are a constant necessity within consumer’s lives.
On Feb. 4, Clorox posted better-than-expected earnings for the quarter that resulted in shares gaining 6 percent on the day. For the quarter, Clorox reported adjusted earnings per share of $1.40 which beat expectations of $1.30.
The company’s increase in profitability was driven by a greater-than-expected decrease in costs under the company’s cost-cutting plan. Similar to Estee Lauder Companies, Clorox increased its guidance for the year as the company expects to continue cutting costs under its current plan.
With Estee Lauder Companies and Clorox posting better-than-expected earnings for the quarter, investors who are bullish on the retail sector were provided with a glimpse of what can be expected from future earnings releases in the coming weeks