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Global Manufacturing Recession Weighs On US Economy (#GotBitcoin?)

Companies like Alphabet and Twitter are beating expectations, but investors are pessimistic about the rest of the year. Global Manufacturing Recession Weighs On US Economy (#GotBitcoin?)

Corporate profits are proving to be more resilient than expected in the second quarter, nudging the stock market higher this month and distracting from anxieties about trade and economic growth.

Of the 221 S&P 500 companies that have reported earnings through Friday, 170 have surprised investors with better-than-expected results, according to FactSet. Technology giants Alphabet Inc. and Twitter Inc. both topped expectations, sending shares up 9.6% and 8.9%, respectively, on Friday. Coca-Cola Co. and United Parcel Services Inc. also jumped after reporting results last week.

Average earnings among S&P 500 companies that have reported are up 0.7% from a year earlier, according to FactSet. That has helped improve analysts’ forecasts for earnings to a 2.6% contraction for the quarter, better than the more than 3% pullback they had been predicting last week.

“The notion of a widespread economic weakness seemed plausible just a few weeks ago,” said Ed Keon, chief investment strategist at QMA LLC. “But in the last week or so you got a pretty good picture of the earnings season, suggesting those fears are overblown. It’s a hopeful sign.”

Earnings reports surprising to the upside are fairly common because analysts tend to be conservative with their estimates. Still, money managers say the latest round of results quelled some of their concerns that corporate profits were rapidly shrinking amid a faltering U.S. economy. More than 80 companies had warned ahead of the reporting season that earnings could be weaker than expected, helping to temper expectations, analysts said.

The S&P 500 has risen 2.9% so far in July, extending its gain this year to 21%, largely driven by the expectation of an interest-rate cut from the Federal Reserve. The stock market’s two best months, January and June, coincided with some of the strongest signals from Chairman Jerome Powell that the central bank will cut interest rates this year. Data from CME Group showed investors are betting on a 100% probability that the Fed will cut rates at its meeting this week.

Still, earnings gains in the latest quarter have done little to lift investors’ enthusiasm about where the stock market goes from here. And for manufacturers like Caterpillar Inc., import tariffs and trade tensions continue to weigh on outlooks. S&P 500 earnings are expected to rise just 1.7% over the full year, compared with the more than 3% analysts had penciled in last month.

The muted earnings outlook for the remainder of the year has contributed to a rise in pessimism among investors, analysts say. The share of individuals who say they expect U.S. stocks to fall or stay flat over the next six months has risen above those who are more bullish on equities, according to the American Association of Individual Investors’ latest survey.

“The ‘Powell put’ is driving the market higher, but the problem in the economy isn’t that rates are too high,” said Liz Ann Sonders, chief investment strategist at Charles Schwab Corp. “What ails us is a global manufacturing recession and business confidence being severely dented by a trade war.”

Industrial manufacturers are on pace to notch the second-biggest contraction in quarterly profits after materials stocks, with earnings projected to fall more than 12% from a year earlier, compared with expectations of a less than 2% pullback earlier this month, according to FactSet.

Caterpillar was a major contributor to that shift after the maker of bulldozers and excavators missed analysts’ earnings estimates because of slowing machine sales in Asia and higher costs from U.S. tariffs on Chinese imports. Shares of Caterpillar fell more than 2% last week.

Meanwhile, technology and communication companies reporting so far have mostly surprised investors to the upside, sending shares of both sectors up more than 5% each this month. Excluding a record-setting fine, Facebook topped analysts’ expectations for earnings and revenue, as did Google parent Alphabet.

But those latest gains have pushed stocks toward their richest valuations of the year, alarming some investors who fear the market doesn’t have much juice left to climb higher in 2019 after the S&P 500 posted its best first half of a year since 1997.

As of Friday, the S&P 500 traded at 17 times its earnings over the next 12 months, its highest level since late September, just before the stock market’s fourth-quarter selloff. That is above the 10-year average of nearly 15 times, according to FactSet, but well below the valuations of the dot-com era.

Alan Adelman, a senior fund manager at Frost Investment Advisors LLC, says current valuations include interest rates coming down and expectations of a trade resolution between the U.S. and China. If either of those don’t pan out, stock prices will need to be readjusted, he said. There is also some pricing in of a fourth-quarter bounceback in corporate profits, with earnings projected to climb 4.8% from a year earlier after declining nearly 2% in the third quarter, according to FactSet.

“We’re in the late stages of an economic expansion. Things can only go on for so long,” said Mr. Adelman, who has been focusing on investing in high-quality stocks that have relatively stable earnings and offer hefty dividends that exceed U.S. Treasury yields. “We have to be realistic. A lot of the positive news in the market is already baked in.”

Updated: 11-29-2019

Daimler (Mercedes-Benz) Looks To Cut Thousands of Jobs

All major German auto makers and their suppliers are now shedding staff in the face of dwindling demand.

Daimler AG aims to slash thousands of jobs over the next three years and cut labor costs by $1.5 billion, the latest round of cost cuts in a sector squeezed between huge investment in new technologies and falling demand for cars.

The announcement Friday by the maker of Mercedes-Benz luxury cars caps weeks of negotiations with labor representatives. All major German auto makers and their suppliers are now shedding staff in the face of dwindling demand as economies slow in China, the U.S. and Europe after years of robust growth.

Daimler, BMW AG , Audi AG , Volkswagen AG and big suppliers such as Continental AG have announced tens of thousands of job cuts in recent months. Continental is closing several plants, including its factory in Newport News, VA.

The companies have blamed the slowing global economy, consumer angst over Brexit and the U.S.-China trade wars for their woes. But they primarily point to an expensive shift from internal combustion engines to electric cars as manufacturers come under increasing pressure to curb greenhouse-gas emissions.

Earlier this month, Daimler said it planned to cut 10% of its global management ranks, affecting more than 1,000 jobs. Daimler wouldn’t put a number on the more far-reaching job cuts to its global workforce, which stood at 298,683 employees at the end of 2018.

Under the plan, Daimler said it would try to avoid any forced layoffs of full-time staff. Instead, the company will trim the ranks of temporary workers and not replace workers who retire, taking advantage of the large number of baby boomers reaching retirement age. The company also said it planned to offer voluntary severance packages and be more restrictive in awarding 40-hour contracts to permanent employees.

“With the key points we now agreed with the works council to streamline the company, we can achieve these goals by the end of 2022. We will make the measures as socially responsible as possible,” said Wilfried Porth, Daimler’s board member in charge of human resources.

Under German labor laws, worker representatives have considerable influence over decisions that directly affect the staff. But many of the decisions that Daimler could take to reduce labor costs might not require labor approval.

The works council, which represents the workforce in most matters except wages, has agreed to the broad outline of the restructuring plan but hasn’t committed to any specific number of job cuts, a spokesperson said.

Michael Brecht, the head of Daimler’s works council, said management needed to come up with a clearer plan for mastering the shift to electric.

“The workforce needs a clear and comprehensible strategy for going forward,” said Mr. Brecht. “A reduction of capacities must not be borne on the shoulders of the workforce.”

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