“Life is not about waiting for the storm to pass, it is about learning to dance in the rain.”

– Unknown

Good Morning,

That’s gonna leave a mark.

Yesterday’s price action was inevitable – and as the title suggests was almost perfect.  Of course, nothing is perfect but close is good enough here for the long-term setup unfolding.  The spring-loading effect we have often covered is before us.  Will it last through the election?

I don’t know but I’d suspect “not”, if I were a betting man.  We were down 950 – and rallied back 300 points on the close.  One would have preferred to see it stay down on the close.

Alas, I suspect there is simply too much money that has been on the wrong side of this market for years.  And, as one can see, few wait around at all for much red ink these days.

They hit the eject button and leave – a spectacular positioning for those of us who focus on the long-term benefits unfolding under the surface.

The good news?  That underlying current is doing little other than getting stronger:

…and why would durable goods not only be expanding – but getting revised upward?

One word:  housing.

Home-buying has a long-tail effect and the dominoes fall for months after each closing.

Note the finer elements of the housing data from last month:  the lowest inventory on record.

Throw in a slow Winter on building that needed supply and add another Spring buying season.  You may very well find we are literally out of homes to buy when we hit Summer of 2021.

Noting a Theme?

Housing better than expected.

Retail sales better than expected.

PMI’s better than expected.

Manufacturing better than expected.

Earnings – way better than expected…note the snapshots below:

And the earnings reports keep pouring in.  This morning’s data will only add to those record-breaking data streams above.

To Cap It Off?

Recall the Yale Crash Confidence indicator we showed earlier last month?  I have pasted it in below again – for an update.

The good news is there is little to no improvement.  Those NOT fearing a crash are at record lows.  Meaning?  We have more people now afraid of a stock market crash than we had AFTER the Great Recession price action ending in March 2009 – some 20,000+ DOW points ago!

…read ’em and reap:

By the way – each of those other low points in the data above, both for Individual and Institutional, turned out to be extremely valuable points for long-term investors remaining patient and focused on the horizon ahead.

Remember, chop, corrective action and waves of fear create the spring-loading effect which drives your future returns.  Pray for more of it.

A Record Falls!

For the first time in 35 weeks, the latest AAII data show that there are slightly more bulls than bears.  Still, even as 65% of the audience remains NOT Bullish, the record-setting run has a positive historical back-drop to it.

Let’s review.

The second snapshot below will show you the results AFTER previous records.  Notice there has only been one period where the results were lower a year later – and that was the aforementioned  2008-2009.  Do not be at all surprised to see a 20% + gain for 2021 as earnings and the reshaping of American business takes a stronger hold:

To give you a sense again of that “spring-loading” effect, check the date at the top of the list.  1/4/1991 was the end of the last big peak.  One year later – gains of 30+% were seen…in the middle of a recessionary fog…which later dissipated when few were expecting it.

A word about America to etch into your brains:  unstoppable.

High Level Review

So we all know the bad stuff.  We are inundated with it 24-hours-a-day.  The strong-minded, disciplined and patient investor pays a steady focus on the higher horizon ahead.  Standing tall in the storms is imperative in meeting long-term goals, even when it hurts sometimes.

So what’s the good stuff?

ISM’s solid

Manufacturing solid

Supply chains coming back to the US

Business openings exploding

Small business optimism and forward-looking hiring plans

Auto production fully recovered

Tech washing over every sector of the market

Earnings and Margins set to shock people a year or so down the road

Massive cash levels serve as future fuel at higher prices

Generation Y just beginning to buy homes – with 20 more years of that to go…

Look for increasing family formations and marriages as the next stage

…in essence – the US economy, thanks to all of us collectively never quitting – is nearly completely off the leash.

I know that sounds like rose-colored-glasses type thinking.  We try hard to have clients think in very long-term perspectives…beyond the chop and waves on the surface.

Let everyone else be thrown off their pathway – you can stay on yours.

Alas, one gains confidence by studying the underlying dominos falling our way…set for years and years to come.

Green Shoots?

Earnings continue to surprise.

The Q3 data is improving each week – as of Friday, with 135 of the S&P 500 reporting, total earnings (or aggregate net income) for these 135 companies are down -15.5% from the same period last year on -5.2% lower revenues.  However…

85.2% are beating EPS estimates, and…
79.3% are beating revenue estimates

(see the data below in the next image snapshot)

The comparison charts below put the Q3 results from these 135 index members in a historical context, which should give us a sense how the Q3 earnings season is tracking at this stage relative to other recent periods.

Both levels are records!

In Summary

The Grim Reaper will keep coming.  Don’t fret…bring it on.

When he 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.  Most especially with the hatred they have collectively dialed up as we head into the most-covered election ever.

Focus your mind on rising above this tension and angst.

Pull your seatbelt tighter and hold on to your popcorn.

Exciting things are dead ahead.