SP500 Report: What do IPO Performance and Earnings Expectations tell us?
Central Banks’ monetary expansion support – rate cut, QE, Bond Purchasing, Repo Tools – are ineadquate to move the stock markets to new peaks:
Reason are clear:
The slowdown in global economies, triggered by trade wars and political risks,
Although the central banks have tried to balance them with monetary expansion support, those monetary policy tools do not strengthen the economic fundamentals.
In 2019, the stocks of the companies, which were offered to the public with great hopes in the United States, were noteworthy. The majority of start-up companies listed on the SP 500 index are on average 5% higher than supply prices, which is well below the index that rose 18% since the beginning of the year.
When we compare the performance of the companies offered to public during the year compared to previous years, we see the weakest performance since 1995.
The following chart shows the
Gray Bar: First Trading Day Price – Supply Price
Blue Bar: October 4 Closing Price – Supply Price shows changes. There are only a bit of Pinterest and Levi Strauss but no other IPOs to please its investors
Quite Poor Ride Hailing Sector IPO Performance
When we examine the performance of Lyft and Uber, which are technology companies based on cost-sharing business model through the mobile application,
Lyft, whose initial public offering was valued at 24 billion USD in March, lost 46% of its value since the date of supply, demonstrating one of the worst performances.
When we look at Uber, the stock managed to surpass the supply price, but in a short time, it faced hard sales and closed on Friday about 37% below its peak. With a valuation of $ 68 billion, the company’s market capitalization reached $ 80 billion for a short period of time but was not permanent. The market value of the company was valued at $ 50 billion as of Friday.
Uber has caused stock investors to worry about a $ 5.2 billion loss in the last quarter.
WeWork, another company operating in the Ride-Hailing sector, announced that it has postponed its IPO on September 30 to a later date.
The failure of recent public offerings is not good news for the investment banks, which generate large revenue from intermediary activities. The failure experienced by some groups is based on the selection of the wrong institutions in the intermediation activities for supply.
Analysts’ forecasts for corporate profitability earning are down by 4%.- Reasons: Trade wars and Strong USD – On a yearly basis, this rate indicates the largest decline since 2016.
S&P 500 Aggregate Estimates and Revisions
- 19Q3 earnings are expected to decrease 2.7% from 18Q3. Excluding the energy sector, the earnings growth estimate is -0.8%.
- Of the 21 companies in the S&P 500 that have reported earnings to date for 19Q3, 90.5% have reported earnings above analyst expectations. This compares to a long-term average of 65% and prior four quarter average of 74%
- The 19Q3 blended revenue growth estimate is 3.6%. Excluding the energy sector, the revenue growth estimate is 4.6%.
- 57.1% of companies have reported 19Q3 revenue above analyst expectations. This compares to a long-term average of 60% and prior four quarter average of 59%.
Despite all the supportive steps of the FED, the SP 500 index has difficulty in making new heights.
When we look at the profit forecasts of the SP 500 Index, it is noteworthy that the expectations decreased gradually in the third quarter.
- Trade wars,
- Strengthened USD,
- Decreasing company profits,
- German economy in a technical recession
- Charges against US President Trump
- Despite the increasing concerns about geopolitical risks, the strong employment market in the US and the supportive policies of the FED prevent a recession pricing.
This week, the trade negotiations between the US and China will resume and will be closely monitored by market players. In a news report last night, the Chinese side narrowed the scope of negotiations, industrial policy commitments or state subsidies will sit at the table with an offer that does not include said.
This may not meet the optimistic expectations of the market regarding trade negotiations.
Impaired ISM and PMI data may further inflate the asset bubble by making the FED offer new rate cuts. The SP 500 active futures, which are trading far from the economic reality , may go even higher if they break the 3030 peak. But this is not the game I want to be in.
I will try to use potential throwbacks as selling opportunities.
On the H4 chart, we see a bearish white swan pattern – I just updated the H4 Interactve Chart for the members -which can be used as a near term selling opportunity. – 2968 – 2970 –
On the bigger charts, I will look for a selling opportunity at 3060-3080 ( SPX VIX will tell us when to short the index with bigger lots)
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