Good Morning,

 

The first week of earnings for Q3 was pretty much as expected.  Add that to executive orders roiling the healthcare sector near-term and you get the chop and churn we had noted the week before as likely.  I would not be surprised to see that be the norm for the earnings season as we have seen the market rally into the releases for the most part.

 

Unless it is a huge beat, please don’t be surprised or frustrated if we just fall flat for a bit.

 

Q3 Earnings Scorecard (as of Friday close)

 

Of course, it is very early but the first week showed us Q3 results from 32 S&P 500 members which, when combined, account for 10.3% of the index’s total market capitalization.  Total earnings for these companies are up a solid 12.8% from the same period last year on +6.3% higher revenues, with 81.3% beating EPS estimates and 78.1% beating revenue estimates.

 

The chart above gives you a sense (once again) of the typical ramping down of analyst expectations and then the slow process of beating earnings.

 

Let’s Stay Focused and Patient

 

We need to remain aware that the next few weeks will be far busier – with 178 companies reporting results over the next 5 days alone – including 53 S&P 500 members.

 

Overall, the beats so far are solid – but that will assuredly adjust as time unfolds.  Here is the thing – even with the hurricanes and global interruptions, we are seeing far fewer negative revisions than normally assumed.

 

Slow and steady – the Barbell works but demands we patiently wade through the type of chop which has become the norm for earnings season and the all-too-bright media coverage of same.

 

A Quick Break

 

While I know we cover a lot of data here at times in the morning notes, it is important sometimes to step back and make sure we remember the driving forces of how and why the economy is unfolding the way it is.

 

We must remember at all times, for example, that the 2008-2009 market downturn had such a deeply emotional impact on the psyche of a wade swathe of the audience, that it will still likely be many, many years before the far of “the other shoe” recedes into the ether of the past.  For some, there will never be a “getting over it”, much like the Great Depression was for millions decades ago.

 

The effort in these morning notes is often to try to help rebuild that confidence and instill a broader view of how economies proceed to expand – even after difficult events.

 

Sometimes, they do even better after difficult events.

 

Remind yourself of the value and long-term impact of Demogronomics.  As we often like to say:

 

Focus on demographics, not economics.

 

In doing so, confidence builds that we are in great shape and the future is bright

Mind-Bending

 

As each new little record is set (the DOW had 6 in a row but the points covered was less than a percent) in markets, the droning on and on of the larger fear becomes evident:

 

When is the next correction???

 

It is on everyone’s mind – even those who refuse to admit it.  Indeed, the “Altitude Sickness” we have often noted is strong, alive and well.

 

With trillions sitting idle in the bank, those who are not invested become even more fearful of the painful end result – assuredly heading our way – as each market increase unfolds.

 

Let’s be clear – OF COURSE there will be a correction.

 

But here is something too easily forgotten:  Corrections are a required and inescapable part of the wealth-building process.

 

Further, while decades ago now, lost in the haze of time, it is easy for one to forget this little tidbit:

 

The 1982-1999 secular bull market, driven by the Boomers, had just one negative year.

 

One.

 

Who do you think came out ahead?

 

Those worrying about when “it” would come and always trying to get around it, or those who invested for their long-term goals and just lived through it?

 

Stable Footing

 

What will the next stock market correction look like?  No clue.

 

But, if history is a guide, it will very likely have little if anything to do with all the current fears.  Black Swans turn gray and white when everyone is always telling you about them – in detail.

 

So get a grip and stay focused on patience and the long-term trend of history.  It’s up – even when you include all the ugliness.

 

The largest corrections often come outside forces – a shock – which is why the term “out of left field” was created.  By their nature, those events are unpredictable.

 

It could be anything from North Korea to potential impeachment action – or something that is not even in your mind at this time.

 

Who knows? And more importantly does it really matter?

 

Bespoke data had some interesting stats to share:

 

It has now been 3,132 days since the last 20% decline (yes – 8.5 years!).

It has been 602 days since the last 10% decline.

It has been 465 days since the last 5% decline.

It has been 335 days since the last 3% decline.

 

Because of this – and the near daily media hype surrrounding it, one could easily miss this…

 

When the SPX has a 6-month win streak (or more) heading into Q4 – strong returns are actually – get this – normal:

 

’35- +16%

’58- +10%

’80- +8%

’09- +5% ‘

17-  who knows?

 

Still Going…

 

Like the EverReady bunny, history says we keep on ticking – even when we get knocked on our ass for a bit over time.  Welcome those periods – pray for those periods.  We get better afterward.

 

Check the latest from the Empire Manufacturing data this morning:

Yep…

 

Once again, a tad but more than expected!

 

And if you are worried about the consumer as we head into what should be another record-setting Holiday Season, well – don’t.

 

Scott’s charts below show us that it is has been decades since the average household has been this healthy.  On top of the latest record setting net worth data for the average household, check the latest charts on leverage.

 

That red arrow points to the 80’s since it has been this controlled:

Note in the second chart above, the current level of obligations as a percent of net worth and income has not been this low since before the 80’s!!

 

There is a lesson…

 

It is about choosing.

 

We always get to choose what we are going to listen to and take in as important.

 

It’s the long-term current we need to invest upon – not the short-term waves which will assuredly always roll ashore to block the horizon.

 

Those waves are the noise too many get lost in…and the reason the long-term game is so hard to win based on fearful activities.

 

Play it Again Sam….

 

The next earnings flood is underway – with a solid start from the banks – all beating.

 

Expect more but pray for that correction.

 

I sure would like to see one.

 

Expect some “buy the rumor, sell the news” chop as the season unfolds.

 

Demographics Rule The Long-Term Game

 

Generation Y is set to do much greater things – far beyond what the Boomers accomplished.

 

Until we see you again – may your journey be grand and your legacy significant.