“Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.”

– Albert Einstein

Good Morning,

We sure hope you have had a great week. As the summer gets closer and the haze is just over the horizon, the chop and churn in markets is already putting many to sleep.

We felt it would be valuable to cover a few things for you on a dial-in conference call update – so that is what we will do. Take note of that data below:

Truvestments Summer Preview Zoom Meeting

Time: May 27, 2021 04:00 PM Eastern Time (US and Canada)

Join Zoom Meeting

We will cover the important items for you, play a short video and get you ready for a long, hazy, boring summer – ripe for opportunity as earnings continue to shock the senses of most investors – and analysts race to catch up.

Speaking of Catching Up

They did a lousy job of that in Q1. I know there is a lot going on. But, have you kept tracked of how massively wrong analysts’ expectations were on earnings so far this year? Incredible. Talk about coming up short.

Recall at the start of the year, the expectation was for a 16% growth rate in earnings. To suggest that was a tiny bit off – is, as they say, a major understatement.

The good news? This isn’t even the biggest comparable quarter change yet – that is set for Q2 and Q3.

Take a look:

For the 425 S&P 500 members that have now reported Q1 results already.

Total earnings and revenues are up +47% and +10.3%, respectively.

The proportion of these 425 index members beating EPS and revenue estimates is a very high 85.9% and 76.7%, respectively.

Just two weeks ago – the numbers were 30.2% and 6.6%, respectively. (see below)

Last week – they were 35.2% and 7.2%:

To summarize:

The Q1 ’21 S&P 500 expected EPS growth rate is now over 47%.

Q2 ’21 expected S&P 500 EPS growth rate is now north of 60%, which will be the easiest comp versus 2020.

This same Q1 ’21 expected growth rate was just 16% on 12/31/20.

The expected Q1 ’21 revenue growth rate is now 11.6%.

The actual net earnings on a cumulative chart scorches anything in history:

Notice the magnitude of change and acceleration. This is precisely what we have been suggesting in our evidence-based snapshots all along the way.

Note the last all-time record is OVER 15% higher than the last all-time record (one bar to the left above – last quarter).

In other words, another $9 Billion or so in earnings from the remaining companies to announce this quarter, and we will have already exceeded the expected cumulative quarterly numbers from Q4 of 2021 (not even announced for 10 more months).

Incredible. The numbers for 2021?

They are already peaking over $210/share in S&P 500. I suspect we could be talking $220 by the time we get to the end of this year.

And Still?

No massive bullishness.

Why? I suspect almost no one believes “it can get any better.”

It is sort of like when many investors said this to me way back in late 1982:

“Mike, do you really think I am going to invest in a DOW over 1,000? It took 7 years to get back….”

Recall this was after 7 years of “coming back” from the 45% bear market in 1975 triggered by the OPEC Oil Embargo.

Don’t fret – they too were very smart people. The latest AAII data below, is up just a tiny notch from last week, even as the averages work grudgingly into all-time highs at this writing:

Recap:

The reading this week is 44% bullish (22% lower than where we started April).

Net net – over 55% of the crowd is NOT bullish – and that $19 Trillion in the bank does not seem to be burning a hole in too many pockets too quickly.

As stated often: Thank your lucky stars that this is unfolding.

Give me a week or two of red ink (as we could easily see during the long, hot days of summer) and we will see bullish sentiment in the 20’s.

Buckle Up

Back to the title today – “In The End…”

In the end, there is no end, really. Just a continuation of time 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.

By the way – note the image below again…

And know this: each one of those columns to the right of the highlight – are big misses. They are short – by tens of billions of dollars.

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.

And P/E multiples while a 10-year bond is still a 70 P/E plus, will not stay at 20-22.

Don’t Fret

We have to do a couple things:

  • Stay patient
  • Stay calm
  • Remain focused on the long-term
  • Enjoy your life
  • Relax
  • 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…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 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.

You’re missing out!

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