“We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”

– Winston Churchill

Good Morning,

It already feels like I am watching paint dry – and we still have 14 weeks of this left. LOL

Basically, here is something to consider.  Choppy may be the only productive theme for the next several weeks.  As covered repeatedly, the long-term is set to surprise many – for a long time – to the upside.  However, it is summer – and I suspect we need to recognize that for what it is in the near-term.

The only exciting thing – unless that media builds another monster for us in the coming weeks (which it easily could) – is that by the 20th of July, the Q2 earnings season will have begun.  Each week that goes by, the YOY increase in expectations for those numbers rises.

It is very helpful to realize that this is the exact OPPOSITE of what historically unfolded prior to the pandemic as the years rolled on.  Previously, earnings expectations would fall as quarters unfolded – and then rise back up as the season’s announcements rolled in.  Our friend, Dr. Ed called it “the earnings hook.”

Forget the hook friends – margins are expanding far faster than inflation fears.  Technology will continue to change everything.  Take a look at the latest trends in data for Q2:

This number is measuring against the pit of the shutdown last year – so sizable increases should be the norm.  We suspect analysts are still well behind – as they have been for years.  In dollar terms, the steady increases are clear as each layer of the onion is peeled:

Here is more from summarizing the data from Refinitiv:

The forward 4-quarter estimate rose this past week to $191.52 (this will pop a solid $7-9) once we roll to the June 30 reading) from last week’s $190.94 and the aforementioned 12/31/20 print of $159.02.

The PE on the new forward estimate is 22.09x.  (but only 18x on 2022 data forming)

The S&P 500 earnings yield is 4.53% versus last week’s 4.54% and the 12/31/20 print of 4.23%.

In other words, stocks have rallied – and yield has as well.

As promised last week, the Q2 ’21 quarterly bottom-up estimate for the SP 500 this week is 44.49, versus last week’s $44.37. The compare versus Q2 ’20 final quarterly bottom-up print was $27.98.

The growth rates are going to stagger the senses – just recall the comp is the “end of the world” last year.

Speaking of Rates

We have been told repeatedly that rising rates will kill the market.  Indeed, on some days, that may appear to be the case.  But we don’t invest for days, right?

Yes, tech is on pause.  This should be accepted (and welcomed) as normal after a 70% run for 2020.  Let the chop roll through the landscape and continue to drive away investor sentiment – even as we chop just below all-time highs.

The Bottom Line?

There is a long hot summer ahead.  Don’t fret over the “two-steps forward, one and three-quarters steps back” likelihood for a bit.  Welcome it instead as a refresher.  A fear reset if you will, setting the stage for a surprising upside into 2022 and beyond.

And just in case you missed the “really big picture review” from late last week, I have included those data points and charts again for you below.

Read ’em and Reap…

This is the Decade of the 80s:

This is the Decade of the 90s:

And this is the 2010s:

A couple things you will note about these “decades”:

a) they all sort of look the same, no?  I mean if you squint.

b) they all included several “terrible events”, many of which the crowd – and the experts – were certain, all fell under the “Armageddon” category – or worse

c) ah yes, there is always a “c”, but in this case, I left the best for last:  each decade saw the S&P 500 rise (roughly) at an average rate of 300% from start to finish

Hmmm...

Yes, that number is correct – 300%.

Now here is what you have to let sink down into your soul.  That place in your mind where it is buried in concrete, not to be rocked or swayed or jarred loose, no matter how many more Armageddon’s the experts spout off about.  That place where it builds a calm level of confidence, no matter how strong the storms blow ahead:

The United States, better than any other developed nation on Earth, is entering a 25-30 year period of the strongest and most dynamic demographic forces ever witnessed.

People Make Markets®

Make sure you know exactly what that means here:  www.trubeginnings.com

So What Mike?

Take another long sip of that cold drink and a deep breath.

Now, take a gander at those three decades above again – and remember “300%.”

And then, consider this as you take in a nice deep breath:

    • That suggests we end the 2020s around 10,000 to 12,000 in the S&P 500
    • That further suggests we end the 2030s around 36,000 to 42,000.

That’s the S&P 500 friends – not the DOW.

Think that’s a little nutty?  Look back at those charts above and consider this:

In early January of 1980, had I told you that the S&P would end that decade above 300, a number never before even imagined, you would have certainly thought that was nutty.

In early January of 1990, had I told you that the S&P would end that decade above a mind-shattering 1,200, a number surely never before imagined, you would have certainly thought that was nutty.

In early January of 2010, had I told you that the S&P would end that decade above a mind-numbing (nearly) 3,300, a number surely never before imagined, you would have certainly thought that was nutty.

One last brain-twister:

Don’t forget that from January 1980 to the end of the 1990’s, we saw the S&P travel from roughly 100, to over 1,400.

We have stated repeatedly – and so far, we are ahead of that statement – that the 2020s and 2030s are the 1980s and 1990s – on steroids.

The year 2020 began with the S&P at about 3,200 give or take a few.  The same math takes you to roughly 42,000 over the next 20 years.

 Enjoy the beach!

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

You’re missing out!

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