A number of leading companies have posted March earnings, and offered outlooks, allowing for a few initial conclusions. First, the quarter was impacted by global slowing, notably the Chinese market, but certainly not that market exclusively. Second, the near-term slowing has led to a cautious tone about the June quarter from many managements. Third, the secular trends that have been powering a number of firms remain substantial catalysts for growth.
If you are positioned to benefit from the innovation cycle, your prospects have been positive, if not your results have been somewhat muted and guidance commentary cautious. Social media firms that continue to attract “eye balls” continue to attract advertisers. Note that traditional media advertising is in steep decline as more and more consumers adopt streaming services that limit this type advertising. Cloud-based subscription models for software and infrastructure delivery are absolutely dominating various industries, leaving those firms with traditional offerings and business models well behind. And the new communication technology, 5G, implemented by various service providers is starting to accelerate in its adoption though implantations can be quite lumpy.
Investor confusion about short term prospects is perhaps best exemplified by the rotational nature of the Market. Different sectors fall into, and out of, investor favor. The flow of funds into the market feels fairly static and new IPO’s appear to draw funds from previous equity winners. That is, investors are selling older winning positions to fund new positions, rather than drawing cash from the sidelines. All this is to suggest that at some point, this sidelined cash could provide further fuel to the market.
Some leading economic indicators have turned a bit more positive suggesting a back half economic re-acceleration. Baring wholesale policy changes, aggressively bad missteps by the Fed, or surprising geopolitical changes, the investing future looks bright. We remain very optimistic about prospects and would encourage further market participation, albeit on a selective basis.