“Spend each day trying to be a little wiser than you were when you woke up.”

– Charlie Munger

IMPORTANT REMINDER!

DON’T MISS our last REVIEW / PREP Call of the Year!

TRUVESTMENTS’ Year End Zoom Meeting

We will briefly review 2020 – Lord knows we have reviewed that enough LOL.

More important, we will set our thoughts onto 2021 and Beyond. Great things ahead – but patience, as always – will remain a critical friend along the way. Join us below – and feel free to pass the link along to anyone you feel could benefit from this process. All are welcome.

HERE IS THE IMPORTANT DATA:

Time: Dec 17, 2020 05:00 PM Eastern Time (US and Canada)

Join Zoom Meeting by clicking the link below:

https://us02web.zoom.us/j/86453033005?pwd=Qm1RSzJEd0EwZGtlV2d1QXpuQ2RGUT09

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Good Morning,

We sure hope the Holiday Season is unfolding as the best one yet – considering the circumstances – for you and yours. Don’t forget – we are here just in case you need anything, even if it is just to talk.

So markets had a very good year during the month of November – LOL. Many experts were caught off guard as the naysayers can be overpowering – if we let them become so. The good news? We will get plenty of practice building that “ignore the news” muscle. As much as I would like to suggest the news stream will get better with the approaching new dawn coming of 2021, I’d be lying.

It won’t – and it still doesn’t matter. Indeed, we should be even more prepared as whatever monster comes after COVID will sure need to be a big one to move the attention needle, if you know what I mean.

As difficult as 2020 has been to trek, then sun is just over the horizon as 2021 and beyond are years set to provide the US economy a real burst of acceleration, moving more rapidly into our next economic revolution. We had industrial, then technological – and now it is all about digital.

The Better News?

Well, oddly enough, while the news tells us the world is still ending, the economy seems to keep finding its next step forward. Crazy as it seems, many elements are continuing to improve as we all look forward – not back.

In the short run, the last couple weeks of 2020 awaits…

With a gain of just over 1%, the S&P 500 is already having a decent month. If the seasonal trend we have noted is any indication, the second half of the month should be even a little better. Note, however, our reference to a January pause – which should not scare you.

The chart below comes from our a little seasonality tool Bespoke provides. It shows the median historical one week, one-month, and three-month performance of the S&P 500 over the last ten years. In terms of the one-week and one-month performance, the median gains of 1.2% and 2.93%, respectively, both rank above the 90th percentile.

Looking further out over the next three months, the S&P 500’s median gain of 4.06% is still impressive but doesn’t rank quite as strong in the 79th percentile. This would explain the other seasonal issue we covered last week – that January after a solid year – can present a pause and short-term traders book profits – and then hand stocks to long-term investors at better prices:

Again – don’t stress too much – this is short-term data

Earnings Data Update

Crazy to think that we are about 5 weeks away from the next earnings season already. Analysts remain terrified of upping estimates for Q4 look back – even as the expectations have been crushed in the recent two quarters, with companies beating estimates over 90% of the time.

Expect at least 70% beats for Q4. Here is the latest:

  • The forward 4-quarter estimate rose again this week to $160.66 versus last week’s $160.40.
  • The S&P 500 earnings yield using the forward estimate is 4.39% this week, versus 4.34% last week. This was the first sequential increase in the S&P 500 earnings yield since the month of October, and probably due to the fact that the S&P 500 fell 1% during the week. The Nasdaq Composite fell roughly 69 bps on the week, while the QQQ fell 1.2% the last five days.

These are likely the more important points:

Why would analysts remain so nervous about raising estimates? Well, recall that even though 11 years passed from the GFC lows in March fo 2009 before the COVID waterfall, analysts never caught up – and remained roughly 50% short in their estimates. Pre-COVID, it was the norm to see 50%+ beat rates. The bottom line here is that Q4 ’20 EPS estimates are likely still too low.

The analyst pattern has been clear all during Covid – i.e. it’s simple: missing a big upside number is not nearly as fatal to an analyst’s career as missing a big downside surprise.

The larger picture brewing for 2021 and beyond is also simple:

The Digital Revolution will drive higher margins and more tech investments across the entire corporate landscape.

The quarterly estimates for calendar 2022 won’t start being published by Refinitiv until April 1, 2021. I bring this up because for calendar 2022, the estimate started out at $200 on April 1, 2020. Oddly, it didn’t get revised too much lower from March through July, hitting a low of $186 and change. Now, it is back to $197+ already.

Given the track-record of the analyst community, expect this to be way off base by late summer of 2021. It would not be odd to see a $208 – $210 forward number by the time 2022 dawns.

While that sounds too far out on the time scale, remind yourself that we will be hearing about 2022 estimates in 6-7 months.

I don’t want to bring the nastiness of politics into this – but we will need to see adjustments to that number if Democrats control the Senate as tax increases will be all but locked in. Let’s cross that bridge if/when we get to it.

Worst-case? It provides the “trigger” for the noted January softness and companies reset into tech even further, increasing margins to pay rising tax bills.

I did not mean to get lost in minutiae – but we will for sure be keeping track of it for you.

Some Updated Charts

As readers know, housing is just getting started on a multi-year ramp in demand. So as we relax for the Holiday Season and spend time with those we love, note the Durable Goods orders are at records…and the pipeline is full and waiting in line so to speak.

…read ’em and reap:

If you allow your eye to gaze back over the data marked in the blue line, nominal order flow is at new records – going back to 1992.

Not a bad way to end a pandemic-laden year, huh? Add that to record reported corporate profits noted below – and you get the feeling that things are vastly better than the MSM wants you to believe.

Stand tall in the storms my friends…we can count on more ahead:

The data in the profits chart above can be somewhat confusing. The data shown are from direct tax returns. Keep in mind that the “earnings season” reports are riddled with adjustments and such, GAAP and non-GAAP. The point is this: reported profits to the IRS on which companies pay taxes, are likely legit.

Record highs is the key focus. The world is changing – fast.

√ Give Thanks my friends…we will get through this because that is what America does.

√ The sun’s rays are just over the horizon.

√ While many will let fear and worry take them off their rightful rewarding pathway ahead, over the long haul, we can be confident that what is headed our way are our best decades.

In Summary

The Holiday Season is here. We always wish you and yours the best of the Season.

Don’t fret as 2021 ebbs ever closer. You can bet there will be more than enough monsters to keep us all busy as the New Year dawns. Like all the other ones before, we will vanquish them together.

We will all…stand tall in the storm – and look forward, above the noise – not back and into the fog-shrouded dust heap of the past.

This rocket-ship ride is just getting fueled up for the trip – even now in the midst of all of this…we are set for collective good years together like none in history – no matter the politics of it all.

Long-term investors have learned that when all of the above ingredients are baked into the pie, the road ahead has been marked by a clear and resounding message:

…surprises to the upside.

It is our job to withstand the assured storms ahead and be disciplined in our planning for clients’ goals.

Sure, more choppy waters are likely as the future unfolds.

The media will do their best to knock you off your focus, grabbing at your fears, stabbing at the ghosts in the back of one’s mind and working to take you off your pathway.

Focus your mind on rising above this tension and angst instead – as we all succeed together…

It is set in stone with The Barbell Economy®…whether one buys into it – or not.

Pull your seatbelt tighter and hold on to your popcorn.

Exciting things are just ahead.

Enjoy Your Entire Holiday Season!!!

Please Stay Safe & Healthy

We are here to help always, even if just to talk.

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