Stocks Brace for Earnings Impact
What is it?
Although the U.S. Stock indexes down this year, earnings estimates have held strong. This comes at a time where recession fears are feeling imminent for investors.
“After the Federal Reserve’s most aggressive rate hike since 1994, Wall Street was quick to pencil in increased risks of a recession — but analysts left corporate profit estimates largely intact.”*
We believe that the earnings will report worse than expected, relatively speaking.
Why does it matter?
While markets have calmed down based on lower volatility, stocks could continue lower after this current rebound in price.
“What hasn’t yet changed has been the consensus outlook on how S&P 500 companies profits will in aggregate be affected by a souring backdrop. And once these estimates begin to reflect those economic concerns, that could make the case for stocks to take another leg lower.”*
Factors like actions by the Fed, or inflation may still move the market however, there seems to be a disconnect between the economy and expected earnings.
Lithium Rallies Along with China
What is it?
A recent article from Seeking Alpha outlines a few investments that are performing well lately.
“Lithium names posted strong gains Thursday, swept up in a broad rally for stocks in natural resources and alternative energy, reacting to reports that China is considering a 1.5T yuan stimulus plan (~$220B) to boost infrastructure funding to lift its slowing economy.”**
Why does it matter?
We have recently been adding to equity positions related to China in two of our equity models. It is encouraging to see that move continuing higher, especially with talks of a recession in the United States.
We also are contemplating adding to a fund that focuses on the production of lithium within our Mega Trends model as it is gaining momentum after a year and a half of volatility.
“Also, Brazil’s government on Wednesday published an executive order loosening rules on lithium exports, saying the move could bring in more than 15B reais (~$2.8B) in investments by 2030.”**
As a part of our investment process, if China keeps up this stock performance we will continue to buy and hold more Chinese related investment positions within the portfolios. We see lithium as a valuable investment option over the long term as it may continue to evolve and grow.
Other articles we found interesting this week:
Fed’s strategy has created a giant bubble
Bill Gates just won legal approval to buy 2,100 acres of North Dakota farmland
Current 401(k) portfolio
Our last portfolio reallocation: 5/19/2022.
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Sources:
*Emily McCormick. Earnings estimates barely budge despite growing recession concerns: Morning Brief. 7/6/2022. Yahoo Finance. https://finance.yahoo.com/news/wall-street-earnings-estimates-recession-concerns-morning-brief-100043038.html
**Carl Surran. Lithium stocks join resource rally as China mulls big stimulus package. 7/7/2022. Seeking Alpha. https://seekingalpha.com/news/3855213-lithium-stocks-join-resource-rally-as-china-mulls-big-stimulus-package
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