Good Morning,

 

Funny how the calendar forms one’s focus when covering markets.

 

We are in that odd spot of the year.  Those few weeks between the haze wearing off from summer, the fears over September, the fears of October crashes, the fears over Q3 earnings and then, awaiting the whistle that kicks off the Q4 run to the finish line.

 

Then we celebrate for about 24 hours for the New Year and get right back to over-analysis.  We then get lost in YOY (year over year) and MOM (month over month) comparisons, CAGR (compound annual growth rate) assumptions and the same tapes playing again each month, almost robotic in nature.

 

Wasted Energy

 

There was heightened chatter about rate fears this weekend as even a meeting with some prospect for the Fed Chair role is now over-analyzed and used to frighten the crowd.

 

Sorry.  Rates are fine.  The Fed is fine.

 

The economy is strolling along at a very steady pace – with more than enough jobs available for those who want to work.  Inflation is tamed, oil is broken, tech is now slowly turning its attack on medical costs and education and the deflationary effect of Gen Y continues to seep into the system.

 

It is a very slow process but one that we cannot escape.

 

And by the way – that is a good thing.

 

On top of that, earnings continue to remain impressive, in record territory and the fears about storm impact may indeed have been overblown as we witness a very light warnings season.  Q3 reports will begin in earnest in another 10-12 days so let’s just stay focused on the steady drivers of the Barbell Economy.

 

Speaking of Storms

 

Harvey and Irma were set to demolish the great run we had on jobless claims as many records there have been set in recent quarters.  Not so – even as a couple weeks have gone by now.  Let’s take a quick look:

According to the latest DoL release, Harvey, Irma and Maria have impacted claims.

 

It is likely we see several more weeks worth before we get back to the lows but note the differences in these three latest storms as opposed to Sandy and Katrina in earlier years. When you consider the impact they had on claims (highlighted above) the fact that claims have not gotten above 300K this storm season is very impressive.

With another perspective showing no seasonal adjustments, strength there has also been solid, despite the storms (see above).  The latest print increased slightly to 215K from 213K, but is a huge 77K below the average for the current week of the year going back 2000.  Looking further back to 1967, claims have only been lower in the current week of the year six other times and only once since 1973!

 

Latest Earnings Snapshot

 

Just as we get ready for a stream of numbers as the Q3 data is unleashed on the markets, the latest data from Thomson shows a nice new levels has been reached on forward earnings growth.  Here are the details:

 

The latest Thomson Reuters I/B/E/S earnings data (by the numbers):

 

Fwd 4-qtr estimate: $137.62

PE ratio: 18(x)

PEG ratio: 1.83(x)

S&P 500 earnings yield: 5.46% (against a 10-year of 2.33%)

 

That puts the year-over-year growth rate of forward earnings estimates at a +10.02%!  The data say this is the highest y/y expectation since 2009 and is most definitely the highest print in the last few years.

 

Just to give you a feel for the year in review, the list below takes the last Friday of each month this year and shows the expected forward S&P 500 EPS growth rate at that time.  Pretty steady trend even as all the terrible headlines kept the audience at just 33% bullish in the latest data:

 

9/28/17: +10.02%

8/25/17: +9.95%

7/28/17: +9.21%

6/30/17: +9.05%

5/26/17: +9.45%

4/28/17: +4.21%

3/31/17: +6.06%

2/24/17: +8.41%

1/27/17: +8.00%

 

In Summary

 

The beginning of Q4 is here – and the nest earnings flood is headed our way.  Let’s keep praying for a correction – even a mild one.  It would only take a week or two before there would be no one feeling bullish, and the world would keep on ticking.

 

I know – I don’t like being patient sometimes either.  Slow and steady still wins this race though my friend.  No way around that.

 

Demographics Rule The Long-Term Game

 

Planning is critical as always.

 

But we must stay focused on the right pitch and be confident that is remains very early in the game.

 

Long-term currents win over time – not short-term, emotional waves.

 

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