“Investing was never supposed to be fun – nor watched on a daily basis.”

 

Good Morning,

Yes – for sure – the markets packed above resistance briefly last week and have stepped right back into the upper trade range again.  Not yet ready to leave base camp, so to speak – one would prefer to see one more dose of setbacks and a last test of this trade range.

Yesterday’s market action at the upper reaches of resistance was weak most of the day, hinting that a weak close was in the offing.  Indeed, every last hour of the day this week has seen selling, often a sign that traders are lightening up.  Triggering a few machine programs here and there should not come as a surprise for anyone here.

That said, it is also important to make one more important point:  it is not whatever the next setback becomes that one should focus upon.  Instead, let’s focus on what’s next.  After we shake off whatever technical players resistance might offer in the short-term, the next leg up should be pretty powerful.  It should also provide a nice surprise to those assuming inflation is here forever and the supply change is damaged for life.

Neither of the current states of the latter items should come as a “surprise” to any client.  This current “monster” is a domino effect of a former monster.  Once the dust has settled supply chains will be better and more productive than they have ever been.  That, my friends, is the reward for the frustration we are all witnessing now.

Earnings Red Hot

Notice that the media is so tired of typing “beat” and “better than expected” that they have almost begun to ignore the steady stream of companies performing better than expected.

Hilariously, we now see them “grading the beats”, i.e.,

“XYZ Corp only beat by 14 cents this quarter, showing a clear deceleration from last quarter when they beat by 21 cents.”

Always remember this:  news will be bad – or presented that way, for the most part – forever.  It IS the business model.

Speaking of earnings…the busy weeks have begun and the flood remains positive:

> 192 of the S&P 500 companies have reported through yesterday.

> Beat rates are 82+% on earnings and 74+% on revenues.

> Earnings and Revenues growth rates are 37.6% YOY and 15.3% YOU respectively.  Recall these started the quarter at 26% and 9.9% – so momentum continues to beat and compound.

Yes, margins are feared as cost pressures, supply squeezes and general delays hit various companies.  But note that even after those pressures, margins are rising – beyond what was expected

 

Notice the further acceleration in later years (dotted lines) in the data from Zacks.  Of course that sets the stage for a broad base of negative surprises is the bearish message.  “It cannot get any better” is the chant from the rooftops.

My answer?

I guess the naysayers might not remember the hell we have all trudged through together in recent years, huh?

Doubting the long-term capacity of our American economy to prosper has been a loser’s game from the very first step.

Still Expanding

Recall where we started this earnings season – much lower than we are now as more beats get logged into the data

 

The answer?

Patiently allow for whatever chop may be left in this current battle.  Red ink for a couple days would cool off recent excitement – and be welcomed.  Whatever the dip or internal churn which may be presented in the very near-term, the larger issue is that it is likely the last before a steady breakout on the back of overwhelming earnings momentum.

Stay patient – pretty soon the news will turn to how “bad” the Holiday Season will be…even as we collectively set more records.

Remember, America is in the business of overcoming – and business is good.

Think it stops here?  No way.  The runway ahead is long – the mountain to climb very larger.

Capital Goods orders show massive investments just beginning at Corporate Capex levels.  These are long-term investments – and signal a solid amount of productivity gains ahead.  This ties into the margin expansion data above.

By the way, Cap Goods orders have not seen this type of growth rate since the early 90’s!

 

Friends – this game is just getting started.  Tighten up those belts, grab your popcorn and pray for one more correction.

Until we see you again, may your journey be grand

and your legacy significant.