America — Stay the Course!
I’ve been saying this all year: The bull market in stocks is FAR from over!
Last week, the S&P 500 index pushed through 3,000 and hit a new all-time high.
And mark my words, the stock market is poised to extend those gains as U.S. companies deliver better-than-expected profits through November.
We are now in the teeth of the quarterly earnings season and one clear pattern is emerging…
The higher a company’s reliance on foreign sales, the worse its profit picture looks.
The 500 companies that make up the S&P 500 saw their profits fall by an average of 3.7% in Q3 2019. That number, however, only tells a part of the profit picture…
What this reveals is that companies who get MORE than 50% of their sales from outside the U.S. saw their profits fall by an average of 9.1% — ouch!
Conversely, companies that get LESS than 50% of their revenues from outside the U.S. saw their profits drop by only 0.8%.
No question, going global is currently a hardship.
That should tell you that Trump’s “Buy American” slogan is more than just nationalist pride or a campaign slogan — it’s also very sound investment guidance.
You can’t attribute all of that to the Trump trade war tariffs either. The bigger culprit is the Federal Reserve, with U.S. interest rates still higher than most anywhere else in the developed world! Which has translated into a stronger dollar, up nearly 9% for 2019 alone.
That’s because a strong dollar cuts into profits when overseas sales are converted back into U.S. dollars. But recent rate cuts by the Fed, including last week’s, are likely to take some steam out of the dollar rally.
A stronger dollar hurts the Information Technology and Basic Materials sectors the most, because they generate 57% and 54% of revenues, respectively, outside the U.S.
So if the dollar weakens, it’ll boost S&P profits even more.
Nearly three-fourths of the S&P 500 have reported earnings. 76% of them have beaten EPS estimates — versus only 14% that have fallen short.
That means companies are exceeding expectations, a very bullish sign for more new highs to come for stocks. Plus, the S&P 500 is up by more than 22% so far this year and is sitting at a new all-time high.
Historically, whenever the S&P 500 hits a new high, the stock market tends to keep moving even higher. In fact, the last 32 times the S&P 500 hit an all-time high, the index has been even higher six months later.
Bottom Line: All year long, I’ve been telling you to stay invested, to buy the dips and that the stock market is headed higher. Frankly, that has been some of the best investment guidance on the planet.
And there are a lot more profits coming our way. Stay the course!
Here’s to growing your wealth,