Good Morning,

What’s missing?  Armageddon.

Sure, recent weeks of price action is unwelcome, sloppy and unpleasant to watch.  Live through it we must, however.  Why?

It is not about what’s now – it is about what’s next.

Out of the Gate

The Q3 earnings season has been chattered about for weeks.  “No way it performs well” the experts say.  “Can’t compete with Q2, no way.” they shout from the rooftops as they rain down concerns, risk and monsters streaming toward us.  Of course it cannot compete!

It is not supposed to and espousing some negative is present because of that simply suggests the speaker does not understand what is unfolding.

Solid Stats to Start

Just 26 members of the S&P 500 have reported so far.  Banks are beating big because they are bringing back all of the reserves they wrote off (inventoried) during the pandemic shutdowns.

Overall, the beats are as follows:  80+% still beating on earnings and over 65% are beating on revenues.

Overall, the YOY increase comps are up 32% and 17% respectively.

You may recall how we started the expectations for Q3 – the chart below shows you those expectations are already tracking to the upside – and we are only 5% through the S&P 500.  Not too shabby

 

Steady as she goes – no matter the garbage you read in the press.  Stand tall we must as the market work through their normal seasonal sloppiness.  It is working – as noted often

 

The string of low readings in the Fear Index suggests nearly 70% of the audience just doesn’t like the market anymore.  They will in the future – but only at higher prices.  The vice closes in – and the fear?  It’s pretty deep-seeded

 

Notice above the composite of all bullish sentiment readings from three different channels in the investing audience: investors, advisors and managers.

Notice the red arrow.  It points out that collectively, we are closing in on the SAME fear levels as we had in the first month of the global pandemic shutdown.  Forming a very positive base in the coming weeks, sets the stage for significant surprises to the upside.

Note there have only been THREE other times this collective sentiment level was witnessed:

The pandemic shutdown

BREXIT

The 2008-2009 Global Great Recession (yes, the one where banks and insurance companies went bust)

The point? 

What happened AFTER each one of those other periods “when the world was ending…?”

In The Chips

If you think Tech is busy now, ask yourself this?  When does anyone think we are “going back” to the way it was before “fill in the blank with any number of terrible monsters present”?  The answer from the cheat sheets:

…n.e.v.e.r.

And if you think tech is somehow going to become less important tomorrow or next week or next year, well – this is going to be quite a shocker

 

The game is just beginning.  To play?  Load up on your patience and discipline.  They will both be needed as we get ready to pack-up, resupply and leave this base camp.  There is a lot of mountains to climb in the years ahead – and plenty more storms.

“Correction”

I am stunned at how quickly the media experts move us all from the gray mist of normal pullbacks (always required) to the “sudden” crystal ball effect of knowing that “no, this was is a full-blown correction…”

As long-time readers know, we always hope it is a correction.

The uglier the better, as the reaction to the upside in the future is defined by the fear created in the window of setbacks.  This current one, so far, has reached a 5% – 6% setback from highs.  It could indeed remain choppy for the rest of October.

But again, let’s look at the previous times in history where we had 5% setbacks and bond markets ticking up in rates

 

Notice that all the way back to 2003 – there was only ONE period where markets were down a year later.  Both the median and average rates of return a year after these types of windows are more than solid payment for the patience demanded.

One More Thing…

Whoever wins when betting against the long-term ability of America to overcome setbacks

 

The red dots market the monsters – from left to right:

The OPEC Oil embargo – a 45%+ drop

The break above 1,000 on the DOW – a few months after I started

The 22$ one-day crash of 1987

The early 90’s recession – commercial real estate – 1,500 banks and S&L’s lost

The end of the Tech bubble bear market

The end of the 2008-2009 Great Recession

The bottom of the Pandemic Global shutdown

Notice – and this is important – how small they all eventually become.

Pull that belt tight – you know how sloppy it can be when leaving Base Camp 3.

Until we see you again, may your journey be grand and your legacy significant