The fourth quarter 2019 earnings season has gotten under way. So far, 9% of S&P 500 companies have reported results. 72% of those reporting are seeing an average increase in earnings of 1.1%. 63% reporting are seeing an average in crease in sales of 1.4%. No wonder the market is up almost 2% in the first three weeks of the new year.

China Trade Update

Even with the signing of a “phase one” deal between the U.S. and China, there has been financial damage done to both countries. According to economic indicators, growth here at home is hovering around 2%; far short of the 3% target President Trump has been shooting for. In China, growth continues to drop after holding at 7% for a few years. Some analysts believe it could fall well below 6% in 2020.

The farming community has been hit particularly hard. Annual U.S. farm exports to China plunged from almost $25 billion in recent years to $7 billion over the last 12 months. The U.S. government has provided $28 billion in aid to farmers but it is estimated that will only make up about one-third of the losses. 

U.S. consumers and businesses alike paid the price for tariffs. In spite of what the president has repeatedly said about China paying for the tariffs, they are either passed on to consumers or absorbed by companies receiving the imported goods. Typically, tariffs bring in about $30 – $35 billion a year. in 2018, that number swelled to $63 billion. 2019’s figures aren’t in yet but they could hit $100 billion.

The international community is less likely to invest in the U.S. when trade wars are waging. Foreign direct investment slowed almost to a complete halt in early 2018. It was weak again in 2019. That’s a drag on the U.S. economy when you consider international companies employ 20% of America’s manufacturing workforce and produce 25% of all U.S. goods exports.

High employment, government tax revenue up, corporate earnings increasing…Its amazing this bull market (the longest in history) is still suffering from a lack of investor confidence. With trillions of dollars still sitting on the sideline, I wonder when it might find it’s way back into the market? We maintain our positive outlook for the markets.