Earnings will be something to keep an eye on this week. It’s no secret that expectations have been really high. Since 2009, 69% of the S&P 500 companies have beat expectations. After the first quarter of this year 79% have beat expectations. Forward guidance could play a key role in the near future. What are CEO’s saying about the next six months? Also, what impact will the tariffs and trade wars have on the companies involved?
We saw some good news this morning in that oil has dropped below $30 a barrel. We could start to see some relief in regards to gas prices, which is great for the consumer who’s in the midst of the summer driving season. The higher gas prices have eaten into about half of the benefit of the tax cuts. If prices start to come down we could see consumer growth pick up which could be great for the economy. There are rumors that Saudi Arabia could increase their production. Also, the Trump administration has discussed releasing some barrels from the strategic petroleum reserve. This could be more of a political decision to get gas prices down before the midterms.
After the financial crisis of 2008, the housing market really hasn’t made its way back to what it was. With GDP just north of 3%, one would think there would be a lot of spending on housing. However, there is a supply problem. There were over 100,000 building companies right before the financial crisis. Now it’s only half of that, about 48,000. That industry has consolidated down and doing a vast majority of building in major markets in the United States. This industry is no longer fragmented. Ancillary purchases are another item that have been affected. The large companies are less likely to make speculative builds that the smaller companies would have done. Smaller companies also would have used more bank financing. While this could be good for the long term, it tends to be a drag on GDP in the intermediate.
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