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Cambridge Weekly – 22nd July 2019


22nd July 2019



…‘twere well it were done quickly

It has been another reasonable week for risk assets, especially equities. At the time of writing, markets around the world are within a percentage point of last week’s highs. In the US, large cap stocks are floating just off the all-time highs. Meanwhile, the global economy continues to look lethargic, and political headwinds aren’t making things any easier. In the US, the quarterly earnings season is expected to reveal the first corporate earnings recession since 2016, and Europe’s company statements indicate a similar picture. Around the world, trade wars, Brexit and other issues threaten growth.

Q2 Earnings could beat low expectations

The US earnings season has kicked off this week, with companies starting to reveal their profits over the second quarter of 2019. But they do so without much fanfare, given the generally dour expectations among analysts. The consensus is that we are in for a poor showing – a 2.8% fall in earnings per share (EPS). That follows a 0.3% EPS fall in Q1 and means that the US is facing its first earnings recession – defined as two consecutive quarters of decline – since 2016. The culprit seems to be profit margins, which after a generation of expansion are coming under pressure from rising costs – particularly wages.

Choosing a passive is not a passive decision

Often at Cambridge we’re faced with a choice: investing in an asset class through active management or via passive means. Many variables are considered when making this decision, including cost, probability of adding alpha, availability of options, efficiency of the underlying market and whether there are any concentrated or excess risks embedded within the passive fund.


Read the full commentary here