Good Morning,

Earnings season is coming to a close over the next 8-10 days, with about 89% of S&P 500 companies already reporting.

More records?  You bet:

Those reported have seen overall net earnings rise by over 42% on 18% higher revenues.  In that list, 80% are beating earnings expected and 78% are beating revenues.  Almost 65% are beating both showing how incredibly far behind Wall Street analysts remain.  Indeed, the overall annual earnings growth expected is still rising

 

Recall that when the Q3 data began to flow, that 39% was 26%.  Notice Q4 has risen several points as well.  Yes, this growth rate will slow as the system catches up with itself from the shutdowns, but more records are ahead.

Speaking of Records

Notice the highlighted column of combined reports profits for Q3 has now surpassed Q2’s all-time high.  When we started the reporting for the season, it was $40 Billion lower

 

We suspect those green bars for next year’s quarters will also rise with time passing – looking for close to $225 a share in S&P 500 earnings for 2022, closing in on at least $245-$250 by end of next year, looking into 2023.

The Issue?

It would be easy to forget that Congress kicked the can down the road a few weeks ago on debt ceilings and limits.  The day in our crosshairs is now December 3.  You may recall in our last couple notes, we had been suggesting we should “hope” for one more pause as the train leaves the station.

That “budget wall” may very well be the excuse we are looking for as we get closer to the date.  So, let’s not be surprised by it as it approaches.  Let everyone else shout “Armageddon” from the rooftops.  It won’t be for sure.  Instead, it is more likely to be an opportunity in disguise – as the last swoon, before the trek up to the next “Base camp” on this mountain range.

From the Shadows

I also like to watch insiders at times like this – along with sentiment.  AAII still shows 60% of the audience is NOT bullish – even as 6 all-time highs in a row are set.  There is one party who is super bullish on the future – besides us.  The insiders who run the companies and the process of changing forever into the digitized world.

Note the chart I have shown below – an image from Barron’s – to report insider positioning

 

Not even a remote interest in selling – and this at all-time highs.  Yes, we may indeed get our swoon we’d like to see for the DEC 3 budget battle, but do not fear it.  Instead, embrace it as a significant opportunity in this long-term journey.

“Bond Vigilantes”

Our friend Dr. Ed coined the phrase back in the 80’s – when inflation was rampant and in the daily headlines.  Since my early days in this game, I learned that the bond market often held many more indications than the stock market.  It is also a much larger beast, weaving its way into many parts of our financial lives.

What is the bond market “saying” about inflation.  Let’s take a peek

 

It may be hard to remember looking back into the haze of “pre-covid” but recall that the 10-year bond ended 2019 at 1.95% after spending most of 2019 well above 2.00%.  Now, we hear every single hour that inflationary pressures will burn us in hell, yet the US Dollar is rallying and bond markets sit nearly 30 basis points below the March highs of this year when “inflation was a sure bet” to cripple the economy.

The point is simple:  Yes, rates may very well be equalizing closer to where we ended 2019, pre-pandemic.  Things were fine then and they will be fine if we return to those levels.   However, the larger “surprise” will be the deflationary pressures which are set to show up again on the stage of fears as soon as the supply demand squeeze is itself equalized.

Buckle up and remain patient – our best years are ahead.

In the meantime, get set for a record breaking Holiday Season of giving.

Enjoy.

More later…

 

Until we see you again, may your journey be grand

and your legacy significant.