“Wealth isn’t primarily determined by investment performance, but by investor behavior.”

– Nick Murray

Good Morning,

The closer we get to the incoming fog bank of the normal “summer haze”, the more antsy you can feel the crowd becoming. It is showing up everywhere in knee-jerk reactions. Held back behind the relentless surge of meaningless media prognosticators, the facts stay hidden.

What are those facts? They are simple, yet oddly mysterious: The Street can’t catch up with the growth in margins and earnings. Expect that all year long.

I mean seriously – note Apple. It destroyed every single metric of importance by double-digits. It amassed over $200B idle in cash and yet it is the most followed company on Wall Street. Dozens and dozens of people are paid handsomely each year to let you know how Apple is doing, only to find out – almost every 90 days like clockwork – that they are doing even better than expected.

It is not just Apple.

Note how fast increases are coming into the system.

This was the stat set earlier this week:

Note the expected earnings growth continued to expand from the previous week. The key items for Q1 2021 were 30.2% in earnings over a 6.6% increase in revenues.

Note the same stats just 4 days later:

Those aren’t your Dad’s weekly increase rates anymore.

These are abnormal increase rates – and they have rippling effects as one can see in the next few quarters as the year unfolds. As each report comes in, each quarter ratchets up. And still – they will be short.

Recall that this week and next are the two busiest of the Q1 reporting season – so choppiness should be expected. For grins, here is what it looks like so far from 50,000 feet:

  • 181 companies are reporting this week.
  • Of the 287 companies that have reported so far (57% of the S&P 500), 87% are beating earnings estimates by a median of 15%.
  • On the top line, 76% are beating by an average of 6%

And Yet?

Meanwhile, with averages careening upward on this choppy slope for most of the month – gaining along the way even though we have to collectively embrace all the angst and knee-jerk reactions over the next disaster, sentiment is falling again.

I know – crazy right?

Read ’em and reap:

Notice that the bullish sentiment has fallen some 25% since the first week of the month (14 points on the reading itself) to a current level of 42%. In other words – just shy of 60% of the audience is NOT bullish – while we set all-time high records.

Sure happy that $19 Trillion is socked away in the bank, safely protected from all these ugly gains over time.

Pray for a correction…is all I can suggest here.

Or maybe a summer swoon.

God knows we will hear about that every day starting about – oh June 1.

It Gets Better

More sentiment data – going farther back:

Sorry – we may have to squint here a little.

Recap:

The reading this week is 42% bullish (25% lower than where we started April).

On December 2, 2020, it was 49%. Note: On December 2nd, markets were 14% LOWER than they are today – and the crowd is LESS bullish.

The bullish sentiment ended 2020 at 46%. Note: That was roughly 10.5% lower than where we are now.

Thank your lucky stars that this is unfolding.

Give me a week of red ink and we will see bullish sentiment in the 20’s.

This is the toughest part of the deal:

“The investor’s chief problem — and even his worst enemy — is likely to be himself.”

– Benjamin Graham

Buckle Up

The tectonic shifts ahead are massive.

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.

Let me remind you again of a scary thought:

Recall when I started in this industry, the DOW was 950.

In roughly 39 years the DOW has risen to roughly 34,000 – while every single terrible thing was happening along the way.

Assume we do only half as well in the next 39 years. The DOW will rest at roughly 500,000 in the 2060s.

Ouch.

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…it will 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 they hurt in the near-term, they 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.

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