Investing

The Answer is No

Good Afternoon,

 

With earnings season mostly over, let’s look at the finale from Zacks’ data perspective:

 

Ten of the sectors are already done – of the 52 S&P 500 members still to report, expect some poor results as many are retail.  While Amazon does change things – one can be somewhat confident it won’t be as ugly as it seems in the headlines.

 

So for the 448 members who have reported?  Earnings are up 10.9% on top of a revenue increase of 5.8%.  For the record, nearly 74% beat on EPS estimates and more than 67% beat on revenue estimates for a blowout combined beat rate as one of your charts below will show.

 

If we combine already reported numbers and the estimates of those still to come, the YOY increases come down slightly (assumes no more beats at all – which is unlikely) to 10.1% and 5.3% respectively.  For the bears, growth was broad-based – and even if we go ex-energy, which clearly had a layup lapping of horrible results from last year – still solid all around at increases of 8.6% and 4.8%.

 

As is the case each earnings season – on beats, analysts for some odd reason simply ratchet down the next quarter.  But here is the key:  the ratcheting down for next quarter is as light as it was for for Q2, when adjustments were made after Q1.  In other words – they are moderate – and setting the stage for more beats.

 

Lastly – and this is the part where most get lost in all the data and miss:  records were set in revenues, earnings and cash flows.  Records = never higher.

 

Even Better?

 

We want to focus on “forward S&P earnings” from Thomson/Reuters since that is where the pricing mechanism is usually at work. […]

Keep it Short

Good Afternoon,

 

Nuclear war.  Nothing much scarier than that right?

 

I am just thinking out loud here but if there were really high enough tensions to warrant concern about a nuke lifting off into the heavens, South Korea’s market would be down a tiny bit more than 4% over the last few weeks.

 

I am just sayin’.

 

The chatterboxes on-air have gotten to the point where they cannot seem to figure out which ill is going to kill us.  They can barely catch a breath between telling us about the latest vitriol-laden missteps in DC or the latest Trumpism or the latest North Korea ICBM test date.

 

And it’s working.  Note the sentiment.

 

Make No Mistake

 

While the three major averages are feeling some of the brunt, the internals have been stinking up the joint for the last month.  With AMZN, GOOG, FB and AAPL carrying so much of the top weight in the markets, it is easy for the public to be dismayed by the broader measures “lack of movement.”

 

The NYSE Composite is up 6.49% this year – and the equally weighted S&P 500 is up not much more – at 6.54% YTD – quite a clip from the headline grabbing averages.

 

Further, while the headlines are solid given the tech push noted above and the ETF passiveness covered previously, note this important item:  Less than 60 percent of stocks in the Russell 3000 are trading above their 200-day moving average!

 

What does that tell you?

 

First don’t under-estimate the bullish nature of this piece of data. At first, it might appear negative.  But, if we step back far enough, turn off the crap being spewed in the press and keep our wits (read – stay calm) about us, history tells us that the “correction” everyone seems […]

About that Swoon

Good Afternoon,

 

I admit, it’s an ugly wake-up call.  Like that alarm clock you know is coming at 5:20 a.m. but you would much rather just sleep.  It was so much more fun hearing the financial pundits speak of another record high – even if they did so under the light of explaining how it should be impossible “given all the problems we have…”

 

Today’s action takes us back to price levels of almost a month ago – the morning of July 12th to be exact – all in one day.  Last week I hinted that we should remember “the string of records was not moving by a lot overall…”  I also hinted that it would only take a day or two of red ink to wash away any semblance of “record-setting excitement” in the crowd.

 

Sadly, we can be confident today did just that – but the crowd was already scared.

 

The latest AAII sentiment data from last evening show once again, that the bulls were culled.  Bullish sentiment fell again!  This on the back of all those new record highs last week – and before today’s red ink across the board:  read ’em and…smile if you are a long-term investor:

More Breadcrumbs….

 

Bullish readings are just 1/3 of the crowd?  You have seen the notes before on all of this sentiment stuff and it has remained the same – for 137 weeks now.  This has been a standing contrary signal that what is most feared is a setback – and not the missing of opportunity.

 

On a supporting front…

 

In case you may still be wondering if we are operating in a new world as it relates to the often referenced “economic uncertainty” and the various “perceptions of safety”, check this latest set of data points from the bond world:

 

Argentina, […]

Debunking Summer Swoons

Good Morning,

 

In case you had not heard it 4,578 times already, history suggests August is the worst month for the Dow Industrials, with an average loss of 1.39% over the last 20 years.

 

The good news?  Don’t fret – September is the worst month if you want to check the last 50 and 100 years.

 

The funny part most people miss though as they focus on the bad is that the fourth quarter is usually very strong.  If one cares to review, October, November, and December have averaged gains of 1.96%, 1.93%, and 1.47%, respectively, over the last 20 years.

 

For those who like math, that’s a compounded quarterly gain of 5.5% for Q4’s vs. a 1.3% average loss for Q3’s.

 

Not too shabby right?

 

This helps explain why I start suggesting we “pray for a summer swoon” starting about May 1 of each year.

 

“Ominous”

 

The great former Fed Chairman, Alan Greenspan, warned us all last week that he has new and growing “ominous” concerns about a bond bubble.  We have covered the bond bubble for so long I yawn when I type it.

 

Here is something to note of importance:  Alan is 91 years old now.  As has been previously pointed out, records show he traditionally has had most of his money invested in Treasury securities.

 

Sadly, like many retired folks, right after their healthy stuff each day – the morning run, coffee, yoga lessons and 5K sprints – worrying seems to be the new national pastime for those who watch too much financial TV.

 

The Good News?

 

I read a nice piece from Mr. Navellier.  It pointed out that current Fed Vice Chairman Stan Fischer does not seem to share Mr. Greenspan’s “concerns” as the former gave a long speech last week that attempted to explain that global interest rates remain […]

Lots of Chatter

Good Morning,

 

There was a recent interview with Jeremy Grantham in Barron’s.  Jeremy has been around for a long, long time – and his firm (GMO) manages billions and billions of client dollars.

 

His writings often see much coverage.  They are very intriguing, enlightening, extremely clear, sharp as a tack and usually, as for future market projections, quite ominous. Indeed as the year began, this warning:  “a horrendous bear market was in the offing” with their work.

 

White Flag?

 

Jeremy comments below:

 

“It suggests to me that I have in general been over-intellectualizing the working of the market for a few decades. I have had too strong a belief that investors would at least be influenced by past data in a sensible way. The market, however, appears not to care at all about the past or to learn much from it. This model for sure seems to say that for 92 years, at least, the market has with remarkable consistency been a coincident indicator of superficially appealing variables that in a strict economic sense have been inappropriate, and that have caused spectacular and unnecessary market volatility. The model is apparently a reflection of human nature and, of all factors influencing the market, human nature, as economically inefficient and unsophisticated it may be, seems the least likely to change.”

– Jeremy Grantham (GMO)

 

The lesson?  Not that someone is wrong – not at all.  More, it serves as a lesson from one very experienced guy.  There is no palm reading.  There is no crystal ball.  There is no unique choice to be made to eliminate risk.

 

Risk is everywhere – always present – in all ways.

 

Time is your controller of risk.  Just time.  Everything else is marketing.

 

Simple right?  Not really.

 

Another Take….

 

I have often stated that any market […]

135th Week

Good Afternoon,

 

For many stocks this has been an ugly earnings season.  That’s not because of results but because of reactions.  While I always say I will ignore what near-term reactions unfold in markets due to ill-perceived emotional events, sometimes it surprises even me.  The good news?

 

When a company surprises to the upside, speaks positively about the pipeline and demand and then watches their stock get shelled for some other odd reason, like, “the stock had run up into earnings”, then long-term investors can realize over time that the stock just became more valuable.  Sadly, it’s the classic “buy the rumor, sell the news” type of action which is focused on just one thing:  movement.

 

The better news?  For now, the second busiest week of Q2 announcements is a few hours a way from being “in the books.”  Then?  The rest of August.

 

Results So Far?

 

Stats are good – with some broader issues unfolding behind the scenes which merit our attention:

 

First – warnings were very light coming into the season which we had noted in early July. This becomes important when one realizes that this comes on top of easy beats from a significant portion of those reporting.  Cap this off with very light overall reductions in Q3, Q4 and 2018 expectations (recall it is normal for these things to trail off as each earnings season unfolds) – and you get a solid backdrop of growth ahead.

 

My hunch?  Global recovery is finally helping pull the economic cart up the mountain.  For so long, the world waited for most of the work to be done by the US economy.  Finally, the weight is being distributed.

 

Note:  the correlation between massive fears about the “euro” collapsing as it was “setting multi-year lows” […]

Haze Dead Ahead

Good Afternoon,

 

The near-term risk of the “buy the rumor, sell the news” type of summer action was timely in the notes two weeks ago.  The busiest week of the summer and the Q2 earnings season – along with very low volumes – set the stage for some internal shellacking of several big names.

 

Yet, new records are being set, new forward earnings continue to rise and the numbers being chalked up as 2018 foundation (pre tax reform and more regulatory burden lift) suggest a steady upside surprise remains on track.  I remain very surprised at the continuing edginess in the crowd – further exemplified last week by wrongly-perceived “risks” and the pace at which minds are changed.  The ETF battle will only grow more burdensome as time goes on.

 

Just for illustrative purposes, the Inccome Portfolio saw three events last week – almost entirely related to ETF reactions.  I will highlight one example and am happy to cover others if you like.  I point this out for educational purposes.  STX reported a very big miss last week.  Instantly, as tech specific ETFs were sold – and since WDC is a holding in many of those ETF’s – it too went down.  This selling did not stop even as WDC announced stellar earnings, continued growth and results which will now far exceed the numbers provided as earnings at the start of the year.  In other words, almost a picture-book report.  The result?  The stock sold off over three days by more than $10 per share – settling somewhere around 7 times earnings for 2017.  This will give you a sense of just how poor emotions can be as a judge of reality.

 

More Earnings Data

 

One thing to be very aware […]

The Barbell Works

Good Morning,

 

Ok here we are – smack in the middle of one of the two busiest weeks in the earnings season.  Before the sun sets on Friday, a third of the S&P 500 will have reported this week alone.  Some of the knee-jerk shennanigan’s are already apparent.

 

Look at GOOG, MMM or CSX.  In the last 5 days, all reported record results.  Let me provide the importance here:  record, as in never been better.

 

So here are examples of companies whose stocks have been around forever.  They have created billions and billions of dollars of wealth.  Still, on a humid summer day, investors of all stripes will react in a manner that erases that long-term effect because, for example, “ad costs were higher.”  Seriously folks.

 

This is what I meant last week when I wrote here, “I would not be at all surprised to se a bit of buy the rumor, sell the news confusion” which is becoming the standard in earnings reactions.

 

Absurd?  Yes.

 

Avoidable?  Uh, no.

 

Long-Term Focus

 

In the meantime, many other elements are unfolding which continue to be solid signs of the months, quarters and years ahead.  Economic stats, sentiment, retail sales, ISM’s, PMI’s, LEI’s – all at or near records.

 

Let’s review and get away from this often-wasted emotional to 90-day events (quarterly earnings charades – I mean parades):

 

A little over 26% of S&P 500 companies have reported Q2-2017 results.  Hidden in the wasted hype is this fact:  their revenue and earnings surprise data are both better than at the comparable point of the Q1 season.  And remember, Q1 was an easy beat since it was comped against “the worst start to the market in the last 80+ years” in Q1 2016.

 

In the S&P 500, 128 companies have reported. […]

Iron Will

Good Afternoon,

 

We hope your weekend is set to be relaxing and enjoyable for family and friends.

 

Here we are, prepping for the worst of the summer haze and the media cycle continues to cover the airwaves with problems.  Just last week, all were sure interest rates were the new, final nail in the coffin.

 

At 2.38%, the 10-year has light years to go before it causes the economy a problem.  Yet, today, as we head into the weekend, the 10-year is back down to 2.23%!

 

Again, fear for nuthin’.

 

Boring

 

Sometimes there is little new worth writing about so let’s summarize for the week.  The media is far too focused on dismantling anything Trump.  Earnings are going great, at new records. Guidance is at new records too.  Prices are on highs.

 

Values are still subdued when you consider people are still crowding each other out of line for a bond at nearly 50 times earnings.  If I told you we only buy stocks at 50 times earnings, you’d think I had assuredly lost my mind.

 

Fear – so subtle a foe – you don’t even know when it is hurting you.

 

Green Shoots Expanding

 

While DC cannot seem to fight its way out of a wet paper bag, green shoots from around the globe are popping up – driving PMI’s higher and output to near record levels – here and abroad:

In both cases, the US and the Eurozone and on upswings – with the US closing in on all-time new highs – surpassing even the juiced times right before the Great Recession when housing was way overdone.

 

Make no mistake – the demographic issues unfolding today in the US are being completely misunderstood by most.

 

A vast majority of the crowd is looking in the wrong direction.

 

The Barbell […]

Read’em and Weep

Good Morning,

 

Needless to say, my wishes for a summer swoon appear pretty bogus so far.  Zilch, nadda, goose eggs, nuthin’….talk about a real bummer.

 

Just about everywhere you look – records.  Except of course – sentiment.  We have covered it for many moons now.

 

Maybe this last week will finally change that?

 

Uh – no.

 

The 8-week moving average of the bullish sentiment in the latest AAII Survey release is 30.96%.

 

The one-week reading, as of last night, did pop.  It rose all the way to 35%.

 

Hence, at all-time record highs in every major index, a mere two thirds of the crowd are still either bearish or neutral on the market in the future.

 

Were you and I told only about current and recent months of sentiment, the mad rush into bonds (still) on any two-day setback and the more than $10.7 Trillion sitting in cash in the bank – we would rightfully tell you that we must be in a very extended bear market.

 

This is good news…and has historically suggested continued positive surprises ahead.

 

Read ’em and Weep

 

We can be thankful for positive – globally-leading demography.

 

The gears are grinding – the improvement is steady – the economy is expanding.

 

Most are focused on the wrong thing.  Sad.

 

Eye Opener:

 

Here is something is that will cause you to pause:

 

The very first 8-week moving average of AAII Sentiment was way back on September 11, 1987.  Spooky date but alas the first 8-week moving average in bullish sentiment was 46.62%.  Back then, the DOW stood at 2,576.  Here is a link to the front page of the Business section of the Chicago Tribune for that date.

 

Comically, you will find that bad news is not new.

 

So here we are, with a DOW 9 times higher – with a bullish sentiment reading […]