“If you’re looking for a home run — a great investment for 5 years or 10 years or more — then the only way to beat this enormous fog that covers the future is to identify a long-term trend that will give a particular business some sort of edge.”
— Ralph Wagner

 

Good Morning,

It’s summer.  Worse than that – it is August – the slowest part of summer.

The part of summer that often leads the most number of investors astray.  The headlines get worrisome, the forks in the road seemingly become more numerous, the chatter gets louder, the road ahead gets darker.  All of it – every single bit of it – happens every August.  And yet, each one – before now, have been a buying point.

The news we should stay focused upon – remains relatively mundane, somewhat repetitive and almost all positive for the future waves of growth ahead.  It’s funny how positive statements about our present or future – are now referred to as just being “optimistic.”  I cannot tell you how many times we can repeat elements which are indeed unfolding around us – and we hear this back:  “Mike, it’s good that you can be optimistic.”

As investors – one must be optimistic.  Besides, when did we get to the point where suggesting good news is coming is “just being optimistic?”

We should each think about that – but I digress.

Demogronomics® is at work…under the surface, while few are watching.  It moves so slowly it is easy to miss.

The expert analyst community on Wall Street has moved from first being grossly behind the reshaping of the US economy and dreadfully short on proper earnings expectations to “wow, this just can’t keep going” and now, the chatter is ignoring how good things are getting.

For a look at how good….read ’em and reap

 

They keep growing and growing and growing.  Annual earnings growth with what is in the books already is now projected to be 41%

 

Note the Q2 over Q2 data above – incredible growth.  The lack of belief in these numbers is further signified by the internal selling on the announcements.  As frustrating as that is to watch – let those prices come in as weak hands transfer holdings to long-term investors.

Valuations are rising – period

 

Not to be left out for sure – the focus goes to the changes seen in Q3 numbers announced through increased guidance as the Q2 season unfolds.  Note they have almost doubled since the start of the year.

Let the chop and churn proceed – this is good news for the long haul.

Stats Galore:

The overall impression one takes away from the Q2 earnings season is one of all-around strength, with total quarterly earnings on track to reach a new all-time record and impressive momentum on the revenue side.

So far, 378 S&P 500 members have reported Q2 results, with total earnings up a staggering +103.8% on +28.2% higher revenues, still with 87.3% beating EPS estimates and 86.5% topping revenue estimates.

If we exclude the unusually high Finance sector earnings growth, total Q2 earnings growth for the remainder of the index members that have reported results would be up +88.6% on +31.6% higher revenues.

Looking at Q2 as a whole, combining the actual results for the 378 index members that have reported with estimates for the still-to-come companies, total S&P 500 earnings are expected to be up +89.7% from the same period last year on +23.5% higher revenues, with the growth rate steadily going up as companies report better-than-expected results.

A snapshot of the annual picture for the S&P 500 index states earnings are projected to climb +41.7% on +12.4% higher revenues in 2021 and increase another +9.7% on +6.5% higher revenues in 2022.  This follows the pandemic driven decline of -1.7% in 2020.

The Bottom Line

“Yea, but Mike why in the heck is the market churning under the surface and going nowhere at these highs if everything is great?”

Good question.  Answer?  It’s summer…and August at that.  Besides, anyone who has read these notes long enough know this:  trade ranges break to the upside – not downside.  The churn is filling the next fuel tank if you will.  My hunch?  Heck we could be sloppy the rest of the summer.  Maybe even thrown in a mini-swoon if we are lucky.

But then, the summer haze will drift away and we will enter that short space between the summer haze and the Holiday Shopping Season.   Then, it will dawn on all the experts that the P/E of the market not high after all, considering the $220/share in S%P earnings shaping up for 2022 and beyond.

Look, if this was easy, there would be no wealth created from it.  We are paid to take the churn and the choppiness and all the angst – while others lose their minds with fear and concern.  Our job as investors is to stand tall in the storms.  It is that act, over time, which earns the rewards.  RISK is a required part of all investing.  It is not something to run from.

Pray for more chop.

And in the meantime, tighten up that belt – this game is just getting started.

Enjoy your lazy days of August…keep your feet in the sand and trust me on the sunscreen.

LOL.  The Suncreen Song.  <– click the link for more fun reminders

Enjoy the weekend.

 

Until we see you again, may your journey be grand

and your legacy significant.