“A few solid pros are more powerful than dozens of cons” -Steve Jobs

Good Morning,

Over the next couple of weeks, we are likely set to hear the worst about our country. We will hear the nastiest things about some people in this country. Much chatter will unfold about this group of people or that group of people.

In the end, after all the media vitriol has been exhausted, we are all part of America. Further, it is the historical roadmap of people here in the US which has made this country the only place on Earth others will risk their very lives to get too. Think about that the next time anyone tells you somethingbad about this place we are all fortunate to reside in.

The Little Picture

The latest earnings season has launched and we are rapidly working our way into the busiest weeks – right on top of the election of course. Beat rates are already in the mid-80’s, reaching that level even more quickly than we did in the last quarter. The only issue?

We rallied into the earnings season.

After a September pause, markets have come right back and are single digit percentage points away from all-time highs. Many long-time readers know that we prefer to see markets soften up a bit before the earnings season starts. Why?

Crowd psychology and sentiment.

If a market falls and chops prior to a flow of data like earnings, the stage is set for the “Oh, that’s better than we thought…” syndrome. On the other hand, a market rallying into an earnings onslaught is more at risk of this posture instead….”Hmm, yea, well that’s good – but we expected that, hence the previous rally….”, often resulting in more choppy action – and even a selling wave after the news is registered.

Were I to guess? I would suggest we have set the stage for the latter scenario – and would suspect we may very well see choppy action as we approach a) new highs – and b) the all-important election.

Now – The Larger Picture

As noted, markets have found themselves pushing back up towards previous highs during October after a sloppy September. By the way – “Sell in May and go away” did not (again) work out all that well for traders. It’s why we focus on investing for the long haul.

I digress.

The major averages have moved right back up to within 1.5% to 3% of all-time highs, depending on where you look.

Alas, as the media and hundreds of talking heads parade across your screen, the Million Blind Mice have missed something rather incredible. The long forgotten (and often ignored) Dow Theory is about to be triggered again. Yes, you read that correctly.

In the midst of all the noise, incessant chatter and blathering on of deep-seeded fears – The Dow Theory is already half-triggered, shockingly first by the Transports.

…read ’em and reap…

Who’d a thunk it?

In all this mess, Transports are rocking. What does it tell us? The lifeblood of this country is doing just fine friends. Materials are moving across the land – and we are set to hear more and more how manufacturing and supply chains will be moving back home, so to speak. You can see the footprints in the sand.

The Dow Industrials chart above is just below all-time highs. We are witnessing a repeat of the psychological battle seen after the GFC in 2008-2009. For years, the naysayers said all the “growth” was “Fed-fueled”, fake money, inflation tinder.

The same fears are being bantered about today. The problem? By the time the crowd figured out that the Blind Mice were wrong, the markets had moved up 400% and 10 years had passed them by.

The Reality

Cars are moving, homes are moving, people are moving, factories are moving, appliances are moving, big ticket items are moving…and the Million Blind Mice are dead wrong, again.

People Make Markets™ and the largest generation of people to ever hit the US economy are just beginning to make their own way in the world. Demand will surge in the coming years as they move to new homes and start building their own families.

Years from now, we will look back on this time window, this crazy, confusing, fear-driven time window – and realize that a massive launch pad was being constructed across the land. Vast opportunities were being seeded. Significant “spring-loading” was taking hold….and the patient investor was set to be rewarded.

What Now?

In a perfect world, we would want to see choppy, weaker price action over the next couple of weeks. We would all prefer to see the spring-loading take place before the election, setting the stage for a rally afterward – just as we saw in 2016. Alas, things never work perfectly – and we are running out of time to fit in a weak window here.

So, hey – let’s keep our fingers crossed and pray for a pullback.

After The Election?

More stimulus, more help, more ingenuity, more new ideas, more overcoming, more hurdle jumping, more recovery, more vaccine news, more of what America does best – build a better future.

Powerful forces are moving things in the right direction. Those forces have nothing to do with what you are watching on TV or reading on your Twitter feed. Nothing whatsoever.

Push the blind mice overboard, toss them a life preserver of course – but ignore them. Focus instead on the massive benefits headed our way.

Demography Rules – and the US has the best demographic structure for the next 30 years – in all developed nations on Earth.

Work hard to quell your fears. Let earnings season bring more good news. Watch in awe as all of us in America do what we have always done. Get better together…even when it looks ugly in the process.

And remember – not a soul on Earth has ever won betting against the idea that our future is set to be brighter than our past.

Embrace the chop, be excited about red ink — what’s coming is more vastly beneficial than most investors currently understand.

The most likely winner? The patient, disciplined, long-term investor focused on the brighter horizon ahead just beyond the fog bank.

In Summary

So – when the Grim Reaper knocks on the door of your mind and stokes your fears — laugh at him and look forward – not back.

This rocket-ship ride is just getting loaded up for the trip.

Long-term investors have learned that when all of the above ingredients are baked into the pie, the road ahead has been marked by a clear and resounding message:

…surprises to the upside.

It is our job to withstand the assured storms ahead and be disciplined in our planning for clients’ goals.

Sure, more choppy waters are likely as the earnings season unfolds ahead. Oh – and we have that election thing too.

The media will do their best to knock you off your focus, grabbing at your fears and taking you off your pathway.

Rise above that tension and pull your seatbelt tighter. Exciting things are dead ahead.