“Too many people are thinking of security instead of opportunity. They seem to be more afraid of life than death.”

– James F. Byrnes

Good Morning,

Hard to believe that two months of 2021 are already in the books. March is set to unfold and the first quarter is nearly behind us. With all the bluster of the press – and oh so many things to fret over as the virus recedes, many will be surprised that we seemingly “made it through…” What may be even more surprising is the latest YTD data from various market averages:

NYSE Composite:3.24%
S&P 500:1.47%

Now, you may feel that I am being a little nutty here – but these setbacks we are watching as we work through the latter stages of FEB and into the early stages of March – are, well, almost perfect. Recall the notes of late January – suggesting history highlights that FEB is typically a down month in the first year of a new administration.

I suspect, had we had another day or two in the month, it would have been. As it was, the averages simply gave up most of what was gained earlier in the month, with no real “damage.”

The good news? That chop is doing just what you want it to do – check the sentiment:

More on sentiment below – but suffice it to say, it is going in the precise direction long-term investors would like to see. More important? One of the new monsters has arrived on stage!

Oh yes, it is the bond and interest rate monster. It is amazing how many times this guy gets repackaged and reshaped and thrust out on stage when rates do anything but sit in the cellar. So many mistake this as somehow being the terrible result of QE, assured pending inflationary fires to burn down all that we know in our financial world or the Fed losing control of rates…and not instead, something just a bit simpler in nature:

An indicator of some receding fear and a tiny chunk of the massive iceberg of money sitting in bonds which are not a tidy place to be for the next decade or so. Good for borrowers – not for lenders…and when you buy bonds, you are a lender.

The rate of change in the bond market has reached extremes that very likely suggest we are nearing the end of this “mini taper tantrum.” There is no tapering coming anytime soon, so seeing rates meander around in their current general vicinity for months on end would not be surprising. Call the new range for the 10-year somewhere between 1% and 2%:

Mr. Buffett

As you may know by now – Warren’s annual letter to shareholders was out over the weekend. It is – as always – a good read as he is such a great story-teller. His message? Same as it has always been since I started in the business:

A pandemic did not change that reality, the Great Recession did not change that reality, 9/11, nor the Tech Bubble nor the Crash of 1987 changed that reality.

The themes we cover for you often will not change either. America is set to have her next 25 years yet. No, that does not mean every week or quarter or year will be great – but the span of time has never looked better given the massive benefits headed our way. Oh sure – there will be lots of storms too – and that brings us back to the sentiment I noted above.

Check this out:

This image above is merely the three-year tally of all of the daily readings of the Fear and Greed index noted earlier which currently stands at 48 from the Friday close (green arrow).

The three blue dots are all significantly higher – implying that the audience felt substantially better about markets and their proverbial pathway forward at those points in time. What were those times and what were the S&P 500 market levels then compared to Friday’s close?

…read ’em and reap: (left to right)

  • Early October 2018 — about 30.20% lower than where we closed Friday
  • Late December 2019 — roughly 17.50% lower than where we closed Friday
  • Mid December 2020 — about 3% lower than we are now*

*At the time – just 10 weeks ago – the sentiment was nearly twice as high as it is now.

Unbelievable that it only takes a week or two of chop and red ink to erase bullish narratives these days. Thank the Good Lord above indeed – as long-term investors.

Look for chop to continue for maybe another week or two – and it should wear itself out by then – if not sooner. This likely sets the stage for another strong springtime jaunt up this large mountain ahead of us.

A Couple Earnings Highlights

While the media will overrun us with what very little bond move means now, we must remain focused on the horizon ahead: and it continues to improve and rates most are going to be shocked by (latest data from Refintiv):

The forward 4-quarter estimate this week is $174.19 vs last week’s $173.68 and 12/31/20’s $159.02. (Recall this rolls higher by $7-$10 at each quarter – March 31 and June 30 coming) – keeping us right on target for $200+ in 2022 data by end of summer chatter.

The PE on the forward estimate is 21.9x, vs 22.5x last week and 26x at 12/31/20.

The S&P 500 earnings yield is now 4.57% vs 4.45% last week and 4.23% on 12/31/20. With the S&P 500 down 2% this week and the forward estimate higher, the S&P 500 earnings yield naturally rose.

For the 4th straight week, the “average” expected S&P 500 EPS growth for both calendar 2020 and 2021 is 5%, up from 4% for months.

And from Zacks:

Two last charts –

Above, the expected growth rate for Q1 2021 coming up in just 6-7 weeks has hit 18% and they will still be short. This is an increase of over 50% on the growth rate in just the last 10 weeks.

Below – the rate of growth compared to Q4 2019 (pre-pandemic) almost continues to rise, on both revenues and earnings YOY (3.6% and 3.0%). In essence, from the markets point of view, the pandemic is fully in the rearview mirror.

Closing Themes…

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.

Yes, I know some of this is repetitive. Building muscle requires the same actions on a regular basis. Without them – atrophy sets in and it become easy to get caught up by swayed emotions. That becomes an even simpler trip-wire to trigger as prices trudge higher and higher up this very long mountain pathway we are on ahead.

The mind-game is even tougher to get your arms wrapped around when the media is pouring bad news into your life with a double-barrel firehose.

Sadly, this dichotomy is unlikely to end anytime soon and the stats above prove it for you.

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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