Large Cap Commentary – July 2018
The end of last month closed the second quarter of 2018. The end of this month allows us to reflect on the market and its stocks, with more than 80% of S&P 500® Index companies having reported earnings results. And, according to FactSet, the read is pretty good. Of the companies that have posted results for the second quarter, 80% have reported positive earnings. If that number holds for the remaining 20% of companies left to report, it would represent the highest earnings surprise percentage rate since FactSet began collecting data in late 2008. Sales growth also is strong, with 74% of companies posting a positive sales surprise. With sales and earnings better than forecasted for the vast majority of companies that have reported so far, the earnings growth for the S&P 500 is running hot as well, at a 24% rate. Again, according to FactSet, were this rate to hold, it would represent the highest earnings growth since the third quarter of 2010. So, the bottom line is that the market is doing pretty well.
Knowing that all things are never created equal, especially when it comes to investing, there have been some exceptions to this very positive backdrop. I have written about the FAANG stocks: Facebook, Amazon, Apple, Netflix and Google. Among those, Facebook and Netflix recently posted earnings that underwhelmed investors. Facebook’s stock, in particular, had a rough go that was exacerbated when, the following day, Twitter reported earnings below market expectations. When the market for growth-y, momentum stock investing took a pause, something had to come in to fill the void, and that’s indeed what happened. As the following chart from Bloomberg indicates, value stocks (in white) rose as momentum stocks, those that include the FAANG group (in blue), fell.
To be sure, a trend of only a few days is hardly long enough to draw conclusions for the next three to five years – Argent’s usual time frame for investing. It is interesting to note, however, that investors bought value stocks as some of the momentum-driven market leaders pulled back. As you might recall, I mentioned in last month’s column that Argent’s investment process has highlighted stocks lately that the average investor would consider ‘value’ as opposed to ‘growth,’ including Target (TGT) and First Data (FDC) corporations. We will continue to keep a close eye on whether this rotation continues and more value stocks rise to the surface of Argent’s investment process.
With the backdrop of very positive results so far in the second quarter of 2018 and the potential of a market rotation from momentum to a renewed focus on valuation, Argent Capital believes our strategies are well-positioned for the next three to five years. We have four successful equity strategies – Large Cap, Small Cap, Dividend Select and Mid Cap. If you have questions on any of these options, or know others who might have an interest in our strategies and mailings, please call us.
Ken Crawford
Senior Portfolio Manager
Past performance is no guarantee of future results. Views expressed herein represent the opinion of the portfolio manager as of the date above and are subject to change. The information provided in this report should not be considered a recommendation to purchase or sell any particular security. You should not assume that investments in any securities within these sectors were or will be profitable. A list of stocks recommended by Argent in the past year is available upon request.
