Crossing Wall Street Review – October 13, 2017
By Eddy Elfenbein, editor of Crossing Wall Street and portfolio manager of the AdvisorShares Focused Equity ETF (Ticker: CWS)
There’s an interesting twist to this earnings season. Companies that generate most of their revenue from outside the U.S. are expected to see earnings growth of 7.9%. Yet firms that get most of their revenue inside the U.S. are expected to see earnings fall by 0.1%.
The big winner of this earnings season is expected to be the energy sector, but that’s really because the comparisons with a year ago were so poor. The market is quietly changing before our eyes. For example, intra-market correlations are the lowest they’ve been since the financial crisis. In simpler terms, the different market sectors have lately been doing their own thing. Normally, they tend to move together. This probably means that investors are willing to shoulder more risk.
Another example of this can be seen in the junk bond market. It’s amazing how much things have changed since the financial crisis. Earlier this week, junk bond yields in Europe dropped to 2.29%. That’s an all-time low. Eight years ago, junk bonds in Europe were yielding close to 26%.
Here in America, a Federal Reserve interest rate hike in December now seems like a certainty. The release this week of the minutes from the Fed’s last meeting showed that the central bank is dedicated to raising rates. Still, the Fed members seem puzzled why inflation is still so low.
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