Kick Off to Earnings Season

Market Overview

Sources: Equity Market, Fixed Income and REIT returns from JP Morgan as of 04/08/16. Rates and Economic Calendar Data from Bloomberg as of 04/11/16.

Happening Now                   

U.S. stocks* reversed trend last week, falling 1.2% as investors took profits and “batten down the hatches” ahead of Q1 earnings season. International stocks posted mixed results with developed markets* advancing 0.7% and emerging markets* falling 1.1%.

Now that the wild market swings of the first quarter are firmly in the rearview mirror, investor focus is now shifting to the start of earnings season, which was “officially” kicked off Monday night with Alcoa’s (Ticker: AA) announcement. The aluminum producer beat on bottom line earnings while missing on top line sales, a trend that has persisted over the past few years as companies focus on cost cutting and margin expansion to drive earnings per share (EPS) higher. In aggregate, companies in the S&P 500 index are expected to announce a contraction in earnings of 9.1% during Q1. If earnings do contract, it will represent the fourth quarterly contraction in a row, a streak that hasn’t happened since the recovery from the most recent financial crises started.

At the start of the quarter, earnings were actually expected to grow by 0.7% this quarter but due to downward revisions in all ten sectors, the worst year-over-year decline since Q1 2009 is now expected. Considering earnings more often than not surprise to the upside, this earnings season could set the table for gains in the stock market during the second half of the year. Higher (than expected) Q1 earnings will help to justify the current forward looking Price to Earnings (P/E) ratio of 16.7 and “price” the market more fairly, providing a positive catalyst to propel stock prices higher.

Click here to watch Kevin Mahn discuss on Bloomberg<GO>.

To be clear, we are not expecting U.S. stocks to gain much more by the end of 2016. In light of the current stage of the business cycle, low single digit returns would be welcomed in this asset class. We do expect market leadership areas to change over the course of 2016. For example, we believe that opportunities do exist for investors who are appropriately diversified and have allocations to international stocks. We believe that international stocks, in fact, will outperform U.S. stocks in 2016 and we stress the need to incorporate them into a long term growth portfolio. International stocks do possess different risk considerations than U.S. equities and we encourage investors to work with a professional when building an internationally diversified portfolio.

*U.S. Stocks are represented by the S&P 500 Index. Developed Markets are represented by the MSCI EAFE Index. Emerging Markets are represented by the MSCI EM Index. Earnings expectations from Fact Set.

Important Information and Disclaimers

Disclosures: Hennion & Walsh is the sponsor of SmartTrust® Unit Investment Trusts (UITs). For more information on SmartTrust® UITs, please visit The overview above is for informational purposes and is not an offer to sell or a solicitation of an offer to buy any SmartTrust® UITs. Investors should consider the Trust’s investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information relevant to an investment in the Trust and investors should read the prospectus carefully before they invest.

Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging markets.

There are special risks associated with an investment in real estate, including credit risk, interest rate fluctuations and the impact of varied economic conditions. Distributions from REIT investments are taxed at the owner’s tax bracket.

The prices of small company and mid cap stocks are generally more volatile than large company stocks. They often involve higher risks because smaller companies may lack the management expertise, financial resources, product diversification and competitive strengths to endure adverse economic conditions.

Investing in commodities is not suitable for all investors. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity.

Products that invest in commodities may employ more complex strategies which may expose investors to additional risks.

Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original cost upon redemption or maturity. Bond Prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.


MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.

MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.

Russell 3000: The Russell 3000 measures the performance of the 3000 largest US companies based on total market capitalization and represents about 98% of the investible US Equity market.

ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.

ML Muni Master [Merill Lynch US Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.

Investors cannot directly purchase any index.

LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.

The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.

The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.

DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITSs that primarily own and operate income-producing real estate.