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“When you look at the dark side, careful you must be. For the dark side looks back.”

– Yoda

Good Morning,

We pray you are having a wonderful weekend and a Blessed Sunday with family and friends.

Ouch

Ugly couple of weeks, huh? Why the heck did they have to upset the apple cart many may be wondering. They didn’t just move my cheese, they stole it – and the plate it was sitting on. LOL

Tech is in tatters they say, “tech not needed anymore” and a re-open trade ahead? The experts are droning on and on about how much of a major shift these last couple of weeks have been.

Before one pulls the mental rip-cord, it may prove important to realize the elements which are unfolding in the larger picture. Note: Trillions of dollars will be invested in many layers of various technologies over the next 2, 3, 5 and 10 years.

  • When companies (and investors) see the 4-quarter impact on their margins and ROI’s – that investment will only rise.
  • These investments will be designed to transform, consolidate and create. They will improve productivity, build new services, benefit our lives in ways we cannot imagine and create higher margins across the board. Every company will change.

The data suggest that the current fears suddenly rising over inflation are set to be proven wrong by summertime – setting the stage for even more surprises as the summer doldrums unfold.

The Bigger Picture?

When someone tells me how ugly a few weeks have been in the markets, I find value in thinking about it at a somewhat higher level. Consider this question:

How many higher weekly closes, versus last Friday, have we seen over the history of markets?

The answers are surprising:

The Index:Number of Higher Weekly Closes – EVER
S&P 5003
Dow Industrials0
Dow Transports0
NASDAQ Composite8
Small Caps4
Biotech12

Noting, of course, that Biotech is perceived by most as the most volatile of the investing sectors, it is understandable that it would have the widest ranges – and hence the largest number of closes higher than Friday’s.

The next largest number of weeks is also likely understandable – 8 in the NASDAQ. We have stated for years – the front-runners always take the most arrows on corrective waves and during down weeks/months. This is normal.

But look at the others in the list and consider this:

The audience is awash in fear again because the S&P has paused “so much” that only three weekly closes in the entire history of the index were higher?

Hmm? And that ugly 8 weeks higher in all of the NAS history? How does that look in the grand scheme of things?

Well – let’s find out. This is since the start of 2019, a year before the pandemic shutdown, to now in a daily chart format:

Consider these scenarios in your mind:

It is Q1 2019, right before the horrible year we lived through during the all-engulfing “China Tariff War” and ions before the nightmare of the COVID-19 Shutdown. Investing in Tech then would have required living through a year of Tariff War sludge and then the 35% waterfall decline of the shutdown. After that mess, we would then have to withstand the “ugly” last few weeks in order to receive a 60% rate of return over two years. Deal?

Likewise, consider one’s timing so poor as to have waited until the eve of the pandemic shutdowns to invest. They then lived through the 35% waterfall decline, “stuck it out” through the last 7 weeks of chop and setbacks – to receive only a 30% (or so) increase. Good?

By the way – the same chart for the NAS – in the weekly format is shown below.

Terrible? Uhh, no.

Not so much chop after all, right? Note the symmetry of consolidation periods (red boxes) along the way. Consider them base camps in a climb up a very large Mt. Everest. Remember, when the “daily activity” seems a bit overwhelming, consider a) it isn’t and b) look at the weekly charts. Monthly might even be better.

Oh, yes – and by the way – same for the S&P 500. Remember, only 3 WEEKS IN THE HISTORY OF MARKETS have closed higher than the Friday close – and that was the previous 3 weeks.

How scary does the S&P price action look now?

By the way, the DOW Industrials and Transports are basis points way from the 4th new DOW Theory “buy signal” triggered over the last 7 weeks.

Inflation?

Yep – maybe for a quarter or two. Gold has likely figured that out already even as the experts scare you to death about the topic:

So let me get this straight?

Stocks are in trouble because rates are rising? Rates are rising because the new monster – inflation – is going to eat us alive? And gold is a mere 1.85% from a bear market after falling 18.15% over the last 6 months.

Uhh…sure.

Corrections are good friends even though they stink – pray for them.

A bump up in rates is good.

Improving economics are good.

Record orders, record backlogs, record output, record earnings, record net worth — are all good friends. Pray for more corrective periods – as they work wonders for long-term investors:

What over-zealous investor audience is the media referencing?

Before I Go

It is not just price structure we should focus on in periods of required chop and setbacks. The underlying data, often lost in the noise, remains very. very strong. It continues to leave many in the broad investor audience confused.

First, a quick snapshot of forward earnings from Refintiv:

The forward 4-qtr estimate this week was $174.59 versus $174.19 from last week and $159.02 from 12.31.20.

The PE ratio remains at 22x the forward estimate.

The 2022 estimates suggest a PE closer to 18.5!

The S&P 500 earnings yield is 4.54% versus 4.57% last week and improved from the 4.23% on 12.31.20.

The calendar 2021 S&P 500 EPS estimate continues to move higher every week, to $174.44 this week, from $174.11 last week, and $167.25 on 12.31.20

A string of additional points:

These benefits are also worth keeping in the back of your mind during the choppy action:

The data above show elevated levels of guidance raising. Note the previous peaks and high readings were just before very lengthy strings of positive market swings.

The next snapshot below reminds us that the latest earnings season showed the 4th best EPS beat-rate in history. The previous 3 records – were the last 3 seasons.

The EPS line is not the only thing exceeding expectations. Top-line beats are at record highs as well:

Last but not least, as the fog of Covid burns away, we are seeing a “normalizing” world of company guidance releases:

The Bottom Line

Buckle up. Chop is here. Don’t be surprised if it lasts a little while longer. The results already unfolding?

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.

Next Steps!

Stay focused on what many will not see.

Think above the clouds. Try hard to not get lost in the fog. See the horizon which is far beyond – and vastly more beneficial – than the headlines.

Many storms will still arrive on our shores – and then they will pass.

It is our job to help you remain focused on your pathway. We are more excited about that today than ever before.

  • The future is brighter than currently perceived.
  • The Decades of Disruption ahead carry massive opportunity…

For the prepared, patient and focused long-term investor.

Buckle up and pull that harness tight…this ride is just getting started.

You’re missing out!

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