“Fear is the path to the dark side…fear leads to anger…anger leads to hate…hate leads to suffering.” – Yoda
As the latest earnings season comes to a close, investors have begun to recognize that the world did not end – as difficult as that is to address in the current state of affairs. In a nutshell, earnings knocked the lights out – exceeding all expectations and shattering records for beat rates – on both earnings and revenues.
We have covered the details several times as the weeks of reporting have unfolded. Suffice it to say that we are looking at 2022 earnings data – likely to be underestimated as well – which is approaching $200 a share on the S&P 500. The point? Dips and corrective waves from here will be your friends. Pray for them and then make sure to use them to your advantage.
…and a Warning on that front: After a barn-burner of activity in markets for the first 11 trade sessions of November, please do not be stressed if we see some red ink setbacks here. It would be expected – and it should unfold.
As we have often stated, the surest way to a long bull market trend is to be regularly interrupted with setbacks and fears. Given the near-term overbought structure of the market from Monday’s big run, setbacks and time to burn off those readings is a positive.
The Holiday Haze
It is at our doorstep. It is a normal part of every year and even as we all struggle with the latest political moves on lockdowns, do not fret, The Holidays will be celebrated. The good news?
Markets tend to rise for several days in advance of all of the upcoming Holidays so that is something to look forward to as well. (so again, hope for some red ink first). This upswing usually starts around the Tuesday before Thanksgiving and then runs into mid-week afterward. In the meantime, expect volumes to begin to recede – with Black Friday usually being positive – but on pretty thin volumes.
All in all – the Haze is around the corner – enjoy the Season with family.
A Good Item…
We so often find ourselves getting caught up in all the daily stress – even when we try hard to get around it. This is a short video that was sent to me. If you wondered how powerful the forces of medicine and technology could be and how they are changing our future every day watch the moment this retired Royal Marine’s life completely changed – for the better:
Dig a Little Deeper
I know this may seem to be getting lost in the weeds just a tad but heck, it’s a boring rest of the week I suspect – and what could be more fun than talking about deeper earnings metrics for you to build confidence over as the weeks ahead unfold and we finally, gratefully grasp the reins of 2021 and beyond????
So – here’s more on the latest earnings data – with the understanding that there are a few more items to trickle in – but those are retail related and I suspect many will be shocked at how good those look.
So – read ’em and reap:
Watching the trends in S&P 500 EPS and revenue growth for the 2nd and 3rd quarters of 2021 will be key as we roll into the new year (which is just 6 weeks away).
The S&P 500 earnings data as of 11/13/20:
- The “forward 4-qtr estimate” rose to $159.92 this week, from last week’s $159.47. In what is a most unusual pattern (but likely very supportive), the forward estimate has only declined once sequentially – in the middle of August – over the last 21 weeks or since the end of the June 30 ’20 quarter.
- The forward PE is 22.4 vs. last week’s 22x.
- The “average” expected S&P 500 EPS growth rate for 2020 and 2021 is still 4%. That has been remarkably consistent since late April ’20 as the waterfall panic receded.
- The forward 4-quarter period covers Q4 ’20 through Q3 ’21, so investors are getting a good read into late 2021 EPS levels.
- Source data from IBES from Refinitiv.
On the expected growth rates in 2021, 2022 and beyond – as can be seen vividly in the record-setting beat rates of the last 2 earnings seasons – my gut feeling is they are very conservative. No analyst is going to step out over their skis, play hero and be positive.
Expect the dark cloud chatter and perspective for years to come as the sting and the fears of this year linger for a decade.
By the way – that is excellent…as it keeps everyone else in a fog and hides the reality of $200 a share sooner than we think. Remember also that 2022 earnings will be the talk of the market – by about August at the latest, just 9 months from now.
Why are surprises set to be so robust? Three reasons – four really – within the larger Demogronomics® issues covered:
a) Massive investments on-going and increasingly so, across the board, in technological remake and evolution
b) Extremely misunderstood benefits of the hundreds of billions of dollars in corporate bonds which are being refinanced — dropping still more billions to the collective bottom line once you see a full round-turn (year) on the cash flow statement.
c) The “comps” next year against the black hole of the shutdown quarters (Q, Q2 and Q3 primarily) as we lap them next year – will be shockingly positive.
d) Americans. We don’t give up…we build – period.
Sure this can be interrupted but another element overlooked here is this:
The massive push for treatments and vaccines is setting records. It is doing so because technology, science and medicine are working together like never before. The vaccine platform that is pushing solutions to the forefront is now set and positioned as a weapon we can aim at just about anything that threatens us. Once we get beyond the immediate enemy at hand, I suspect we will see these tools being aimed at other diseases – again changing the future for mankind.
One Last Item on Earnings
Both “expected” S&P 500 EPS and revenue growth are still steadily improving.
- Note again that Q3 ’20 S&P 500 EPS & revenue growth rates saw only a 7.4% drop for the former and a 1.4% drop for the latter – after a complete global shutdown!
- This should be seen as very positive for the long-term investor – and a sign of significant underlying strength.
We have consistently suggested here that 2020 is a mulligan. The key has been to see that 2021 data shows growth over the 2019 (pre-cov) data. The good news?
The 2019 actual EPS was $162.93. Today the full-year 2021 current EPS estimate is $168.64 (and VERY likely far too low).
And lest we forget: I remind you that the force of the manufafturing comeback here in the US is a very solid benefit for us into 2021 and well beyond.
√ Note the image above – manufacturing indices are within whispering distance of record highs!!
Space…The Final Frontier – UPDATED
You thought we were kidding?
Two evenings ago at 12:37 in the morning, this happened:
In 10:01 seconds, the crew of 4 was hurdling through space at roughly 17,000mph about 201 miles above Earth. Even more stunning, in the same 10:01 seconds, the rocket which had propelled them there had already re-entered Earth’s atmosphere and descended to land itself perfectly on the deck of a ship in the middle of pitch black night sitting in the middle of the ocean.
Do not underestimate the powerful forces at work. Change is happening so fast it can be a blur.
This is good friends.
Demogronomics® suggests – as stated for years – that the runway of opportunities ahead is long – and profitable. But not without volatility and the required patience to withstand stress and rapid change at times.
√ Again – pray for a correction.
√ Dips are your friend – don’t forget.
The Grim Reaper never rests. Media revenues would die if he did.
Don’t fret…instead – tell him to bring it on.
Stand tall in the storm – and look forward, above the noise – not back and into the fog.
This rocket-ship ride is just getting fueled up for the trip – even now in the midst of all of this…we are set for collective good years together like none in history – no matter the politics of it all.
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 future unfolds.
The media will do their best to knock you off your focus, grabbing at your fears, stabbing at the ghosts in the back of one’s mind and working to take you off your pathway.
Focus your mind on rising above this tension and angst instead – as we all succeed together…
It is set in stone with The Barbell Economy®.
Pull your seatbelt tighter and hold on to your popcorn.
Exciting things are dead ahead.
Enjoy Your Week As Always
Please Stay Safe & Healthy
We are here to help always, even if just to talk.
Until we see you again, may your journey be grand – and your legacy significant.