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While the Inauguration of President Donald Trump and his constant headline grabbing ‘executive actions’ have been the biggest drivers of the shorter-term moves in financial markets, investors are starting to get a few other items to look at that will impact stock prices. Topping that list are the fourth quarter earnings reports and initial outlooks for 2017 from many major North American companies. While the initial results from S&P500 companies have been ahead of expectations, the earnings ‘beats’ have been quite small and many were accompanied once again by ‘misses’ on the revenue lines. So once again we have companies using stocks buybacks, lower tax rates and stronger gross margins to generate earnings ahead of (lowered) expectations, but the all-important top line continues to be mediocre, at best. For U.S. export-based companies, the recent strength in the U.S. dollar has definitely created a headwind, as has the weakness in some emerging market economies. We have also seen some ‘misses’ from key growth stocks last year including Starbucks, Nike, Under Armour and UPS. Big cyclical winners have also disappointed including Caterpillar, Freeport McMoran, Exxon and Chevron. Financials have delivered earnings in line with expectations while technology results have been mixed.
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