Well, fear is rising – big time – and all because of the same choppy price range we have been in for weeks. It is easy to overlook, so don’t fret. The charts below are included for a snapshot – of time mainly.
Suffice it to say that the NAS (Tech) is trekking through what will become a very helpful pause. It should have an 80% up year. Spending a few months churning around and causing spikes of fear is not a bad thing. For the future rate of return – it is a good thing. Recall we often state – those who lead the race get the most arrow in a pause.
As to the S&P 500, well, it is currently working through the thinnest range I can recall in many years (as a percent of the average). Over the last 25 trade sessions (5 weeks), all but one of those days have closed within an 80-point range – highlighted for you below.
Often this type of tight range can churn up fears and can drive nervous investors to trigger a washout that could last a few days – and then once weak hands have left, the trend continues (more on that for the weekend):
And keep in mind that this next image is the S&P over the last 5 years – and still, even now, the image below that shows you the fear levels very elevated.
Of vital interest: note in the Fear Index image below, that 1 year ago – and 41% lower in price – the reading was one point higher at 39. As such, odds are higher that this is reaching sort of a “crescendo” in the near-term.
The Tech world (NASDAQ) is getting most of the headlines. Cathie Wood, the darling of last year is now seeing far too much negative press to be correct. We should all be learning from this – what is hated today will be loved in a few quarters and vice-versa – but it too passes with patient hands.
Here is the 4 months of churn (while tearing away the confidence):
The same snapshot over 5 years does make you scratch your head just a bit though:
In a continuation of the points about shifting perspectives, the favorite trade today is energy – the same asset that was trading in negative numbers a year ago.
In the end, we must stay focused on the long-term current as often noted.
Earnings and forward guidance continue to knock the cover off the ball. Notice the continued uptrend of surprises as they get more significant during the maturing Q1 data reporting. Q2?
Set to be a blowout on comparables given the significant improvements in margins.
For just a brief insight there even though we are 3 months way from same, the Refintiv and S&P 500 data providers are now expecting 61% EPS growth and 17% revenue growth versus Q2 ’20. Keep in mind this is against the worst of the shutdowns – and pandemic panics – and of course, the comps for the remainder of 2021 will not be as big.
No matter, we are set to be well into the $205 – $212/share range for the SP 500 earnings in 2022. The data into 2023 really gets nutty.
In the end: Patience my friends – even when it sucks.
Earnings growth stats images below go from latest and then read back a few weeks. In real dollar terms, earnings have never been higher, of course.
Expect more records in 90 days.
One more thing about inflation. Once we get the squeeze in the pipelines of supply caught back up, the comparables on inflation pressures ease over the next 2-3 quarters. Over-reacting to that is a sign of watching too much news.
In the end, there is no end, really. Just a continuation of time (your greatest ally) and the trek up this very high mountain ahead. There will indeed be treacherous spots and perilous moments that will terrify many. It will be our job to keep one focused on the long-term current driving us all forward.
That said – the tectonic shifts ahead are massive.
We have stated this many times over and at the risk of sounding too darn boring, here we go again:
The leverage of change and the Generation Y technology waves ahead are creating massive changes in margins.
Earnings will be far more leveraged and see many more benefits than currently understood.
The pandemic shutdown had one benefit: if a company was not killed in the pandemic, we would argue it is now “unkillable”.
The armor created, the tools built, the technologies unleashed, the systems implemented and the capital invested during the shutdown storm has set the stage for a complete remake of all that we “know” – and the Q1 numbers are just a tiny glimpse into that benefit.
The earnings momentum unleashed in 2021 is set to shatter records in every aspect measured. This will build a platform for the change we anticipate as massive new industries are just ahead.
Don’t Fret During This Presumed Panic
We have to do a couple things:
Remain focused on the long-term
Enjoy your life
Ignore bad headlines
Let the game unfold
Your head will be spinning at times because our minds will try very hard to make sense of it all – and the data being thrown at us will feel overwhelming.
Near-term, much will not make sense. In time, it all will.
We must find a way to control our patience and expectations. As stated before, much is often lost by reactions to short-term issues based on long-term plans and results.
In essence, investors want the lifetime benefit returns history repeatedly proves, but they want them today.
The Bottom Line
New doubts, new fears and new monsters are all forming bricks in the new foundation being built for the next leg up as the spring dawns and the US builds into its “new normal.”
So what now? Cinch that belt tighter. And grab your popcorn.
The pace of change is going to be head-spinning – with plenty of gut-wrenching interruptions along the way.
Get comfortable with this process…as it is set to be with us, forever.
Corrections and setbacks serve a role – they build your value for the next run – and we are unlikely to get very many of them in the years ahead.
Even when pauses, sector churn and internal chop hurt in the near-term, they work to build foundations which then create the gains of the long-term.
We must all remain diligent and prepared to always stand tall against the storms. Standing apart from the crowd permits one to always be ready to do what most will not.
And remember, problems don’t come to stay – they come to pass.