Companies will begin reporting their December quarter results, and offer March quarter and initial 2019 expectations next week. On the whole, we anticipate the announcements to be positive, though we do expect some bumps in the road. Four factors are likely to have impacted the December quarter- a general global slowing of industrial growth, the on-going trade global trade war, the Fed interest rate increase, and the subsequent dramatic stock market decline in December. These factors may have led to a pause in the rate of consumer spending (already seeing some brick and mortar retailers disappoint), along with a moderation in yearend capital expenditures (equity prices of hardware companies and semiconductor companies may have already discounted a disappointing December). With that said, the secular growth story we so often allude to continues to run its course.
Notably software infrastructure, at the heart of this secular growth story, has not corrected much at all. Select biotech companies, buoyed by very promising clinical data results, appear to have catalyzed a turnaround in investor sentiment. Moreover, we expect merger and acquisition activity in biotech to pick up substantially throughout the year as larger companies look to improve their pipelines.
The Fed is now taking a more dovish stance, and there is the sense that the trade situation will offer some resolution shortly. Our expectation is that on balance the December quarter results are likely to be in-line, but we don’t expect managements to make any heroic predictions about the full year at this point. Nonetheless 2019 looks to be a very promising year, perhaps a bit more of a stock picker’s market, as the secular themes we’ve highlighted unfold.