Markets, GDP and Corporate Earnings on August 1, 2017

This report is written as an executive summary of how we have interpreted recent market, GDP and corporate earnings data. If you have any questions, please do not hesitate to contact Rick Welch at (215) 603 2976 or

Markets – In July, we saw the domestic and international equity markets continue to grind higher. For the month, we saw gains in US Large Caps (DJIA was +2.83% and S&P 500 was +2.09%), US Small Caps (Russell 2000 was +0.63%), and International (ACWX was +3.50%). Volatility (as measured by VIX) finished July at 10.26 after spending much of the middle part of the month under the historically low level of 10.0. The last VIX reading over the long run average of 20.0, was 22.51 last November 4th just prior to the 2016 US Presidential Election. The Barclays US Aggregate Bond Index rose +0.12% as the yield on the benchmark 10-year US Treasury bond rose from 2.27% to 2.29% during the month. For 2017, we see the following year-to-date performance data: DJIA (+10.77%), S&P 500 (+10.33%), Russell 2000 (+5.13%) and International (+17.18%).

GDP - The Advance Estimate of Q2 GDP growth released by the Bureau of Economic Analysis ( showed that the US economy grew at an annual rate of 2.6%, generally in line with expectations. This was a strong acceleration from the 1.4% growth recorded in Q1. During the quarter increases were seen in personal consumption expenditures (PCE), nonresidential fixed investment, imports (which are a subtraction in the calculation of GDP) and federal government spending, all of which were partly offset by decreases in private residential fixed investment, private inventory investment, and state and local government spending. Strong consumer spending and business investment suggest that economic growth will continue as we move into the second half of 2017. Consumer spending, which accounts for almost 70% of US economic activity, rose 2.8% during the quarter. Durable goods orders rose 6.5% in June another signal to many of sustainable economic growth in the future. Business investment rose an impressive 5.2% in Q2. Disposable income increased 3.5%, compared to a rate of 5.1% in Q1. The personal saving rate, which is personal saving as a percentage of disposable income, increased 3.2% compared to a Q1 increase of 2.8%.

Earnings - The Q2 earnings season is well underway with over 57% of the companies in the S&P 500 having reported their quarterly earnings. Thus far, the results are better than expected with 73% reporting (EPS) above estimates and 73% reporting sales above estimates. EPS and sales growth are both above their 5-year running averages. Blended earnings growth for Q2 is coming in at 9.1%, higher than the estimated Q2 earnings growth rate of 6.5% at the start of earnings season. At the sector level, Technology, Health Care and Utilities have the highest percentages of companies reporting earnings above estimates, while Telecommunications, Energy and Consumer Discretionary have the lowest percentages of companies reporting earnings above estimates. Estimates of Q2 revenue growth indicate an increase of 5.2%, up from the June 30th estimate of 4.8%. Thus far, the Energy (+322.8%), Technology (+12.9%) and Financials (+10.7%) sectors have the highest earnings growth rates. The Consumer Discretionary sector is the only sector reporting a year-over-year earnings decline of -1.0% with disappointing results in Leisure Products, Internet Marketing and Auto Components. From a valuation perspective, the forward 12-month P/E ratio is 17.7, both above the 5-year (15.4) and 10-year averages (14.0).

Richard M. Welch, Jr.

President and Chief Investment Officer

Website Design For Financial Services Professionals | Copyright 2019 All rights reserved