Weekly greetings from the Money Matters and Austen Morris Associates team! Moving in to the fourth week of 2014, it was a full week of data as earnings season is upon us with just over half of the S&P 500 companies releasing corporate earnings so far. Of the companies that reported, only about 57% have beat expectations, slightly less than the 65% we’ve seen over the past several quarters but nevertheless, this was enough to drive most of the markets up globally. The S&P ended the week just slightly below where it started, while the Hong Kong Hang Seng and UK FTSE both ended the week up just over 1%.
There’s still several major companies left to report, including Procter & Gamble, Microsoft, and Starbucks (to name a few), so expect investors to keep an eye on how the remainder of companies fare with their reports. If the trend last week is any indicator, then we’ll likely see investors continue to favor equities even with the lower than average winners. There has already been some strong resilience in that companies with weak earnings haven’t seen the pullback that would normally follow such disappointing results, and this could indicate that more growth in equities is expected throughout the year! But there are still plenty of ongoing issues, in particular whether the US FED will continue their scale back of stimulus, so be sure to keep an eye on the markets and central banks in addition to staying tuned to our weekly Money Matters updates where we will continue to report on earnings.
Over in Asia there is some concern about a slowdown in China following their weak December numbers, but as we’ve said before, this is just one month of data and not enough to signal a trend. And for the most part, it seems other investors agree with us in that they too expect China to improve from their lower December figures. China GDP for 2013 has come in at 7.7% which is right in the middle of expectations but doesn’t provide too much emphasis one way or the other on where China will push towards in 2014. China is still going through its economic shifts and with their stock market, the Shanghai Stock Exchange, opening new IPO’s for the first time since October 2011, we expect the China markets to react to data relatively slowly amidst all this change. Add all of this to their upcoming Chinese New Year holiday starting next week, and we wouldn’t advise any changes to China exposed holdings at this time as some numbers may be accounting for this upcoming holiday.
In Europe the outlook remains relatively the same with the Eurozone continuing its recovery whilst remaining on fragile ground. There has been a little drop in strength of the Euro, but as there isn’t much reasoning for the Euro to have dropped, we can probably chalk this movement up to dollar strength. Our long time readers may know that the US dollar is the offset to the Euro, and although the US will want a weaker dollar over the long term in order to pay off their debt, moments like this can be expected whereby the dollar receives some strength, and will push its currency offset (the Euro) down.
So with earnings season under way and a plethora of data coming in that’s been relatively well received by the markets so far, barring any drastic announcements, we can expect this narrow trading range to continue. Amidst this, investors will want to hold a well diversified and mixed balance of funds and be exposed to both the developed and emerging markets.
For Austen Morris Associates’ investors – talk with your advisor about any repositioning to take advantage of markets at this time. For more information about Austen Morris Associates please visit our website.
Austen Morris Associates Wealth Management & Investment Team
Co-Head of Portfolio Management