“Investing should be more like watching paint dry or watching grass grow.

If you want excitement, take $800 and go to Las Vegas.”

— Paul Samuelson


Good Afternoon,

This week has surely done its job of testing everyone’s patience.  Prices “plunged”, according to CNBC, on Monday – and the day was filled with experts giving all parties lots of reasons for “why it happened.”  Two days later, those reasons seem to have mysteriously been overridden by something else.

As soon as they can figure out how markets returning, basically, to where we started the week is also bad for you – then more will be shared by these experts.

Our Thoughts?

A review of the June morning notes will show that July is almost always choppy after a “big up” in the first half of a year.  This was covered before the Delta variant became the newest reason we are told Covid will never end.  Now, Delta V captures most of the headlines describing why everything “is bad.”

Our message for investors is a little different – it isn’t all bad.

Sadly, while these elements are being well hidden by all the media strife and mayhem, many things have actually never been better.  The spectacular news is that while improvements continue under the noise – a mirage is forming.   The summer mirage is the end of the world – again.  The mirage is fogging up the horizon and the minds of many in the audience, just like all washouts in summer tend to do.   A major portion of the audience is once again letting their emotions do the talking – and it shows.

First the AAII latest data:

Notice as July unfolded – bullish readings evaporated.  We now can see that 70% of the audience no longer feels good about the future.  These readings are a tad bit different from the Fear and Greed Index – as the latter is live and the former is a weekly survey released in the early morning hours every Thursday.    Hence the slight difference.

The message – 70% of the audience does not like the market.  This is superb given we are roughly 2-3% off all-time highs in a month which is expected to be choppy after a major move up for the first half of the year.  Good?

There Is More…

This is the snapshot at the “perilous” lows reached on Monday when selling was the message of the day:

Yes, that is a 16.  The inversion means that 86% of the market – did not like stocks 1,000 points lower than they are now.  Indeed, it gets even better.  With stocks basically back to where we started the week – choppy as it may feel – the latest data show this


You are reading that correctly – it is 24 – lower than the readings of Friday – before the week started.  This continues to prove out what we have touched on often this year.  We are in a strange window of time where the larger the number gets, the scarier any price action feels.  This will become even more perilous we prices rise further in the years ahead.


Those bonds sure seemed to react to the fear wave, dropping all the way to this on Monday

Only to rally all the way back to this today

The more important element to note?  This reading in the last chart above is 50 basis points lower than in mid-March when the squawk of the day was all about how inflation was going to destroy the economy.  The lesson?  Don’t overreact – even when things are choppy.

Speaking of Earnings

Yes, in case you wondered, they continue to surprise to the upside.  When the season began – the expected growth rate was a hair over 67% – a stunning figure lapping the shutdown lows last year.   With roughly 15% of the S&P reported (meaning a long way to go still), that number is already dust in the wind.  The latest expected increase YOY is now over 71% – and rising – with revenues up over 19%

Here are some of the internal stats for those who enjoy the data:

First, the key ingredient emerging from the Q2 earnings season so far is one of all-around strength, with impressive momentum on the revenue side particularly notable.

For the 73 S&P 500 members that have reported Q2 results already, total earnings are up +108.2% on +15.5% higher revenues, with 89% beating EPS estimates and 83.6% topping revenue.

While the outsized earnings growth pace is mostly due to easy comparisons, primarily in the Finance sector, the performance on the revenue front (growth rate as well as beats percentage) is tracking above what we have been seeing in other recent periods.

Easy comparisons and reserve releases are driving the outsized earnings growth for the Finance sector. Excluding 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 +54.4% on +20.9% higher revenues.

Looking at Q2 as a whole, combining the actual results for the 73 index members that have reported with estimates for the still-to-come companies, total S&P 500 earnings are expected to be up +71.3% from the same period last year on +19.4% higher revenues, with the growth rate steadily going up as companies continue to report “better-than-expected” results.

So Mike?  Why In The Heck Are They Selling

I suspect it is due to what we covered earlier in the month.  We have entered this strange, but deep-seeded, perspective which seemingly only arrives at once place:  this all ends badly.   My second hunch is what we are starting to hear:  “peak” as covered earlier in the week.  “It can’t get any better than this” is what they will tell us all.  That perspective will destroy your ability to build wealth.

Here is where that fallacy comes from:

Company X earned $100 last year in Q2.  Using the average growth rate increase above, that number would rise 71% to $171 this year.  Great.

Yes, the odds are VERY high (practically guaranteed) that we will not see a growth rate of 71% YOY anytime soon.

That is a very short-sighted view however as I will further explain.  If Company X “only grows” at 15% a year from now – then their $171 will be $196 – and indeed, much better than $171.

Do not ever get “growth rates” confused with lack of improvement overall.

The bottom line is this:  we are approaching $200 / share in earnings for the S&P 500 in 2021.

The numbers for 2022 are just beginning to “show up” in conversation.

Sooner than you think, 2021 will be lost in the conversation entirely.

At $215-$225 for 2022, you have an S&P prices at somewhere around a P/E of 19.5 times that midrange for 2022 earnings.

This stand against a 10-year US Government Bond at slightly over 78 times earnings.  Can you guess which one of those avenues will perform better over the next 10 years – inclusive of all the storms to come?

The Summer Range

The choppiness we suspected is upon us.  Yes, it does not feel good short-term – selling windows never do.  However, it is creating the very thing you want it to create – fear, and a new foundation of trade range activity which tends to form the base for the next surprise – to the upside.

The trade range can also confuse – so I have one more chart for the day.  Let’s look at the NYSE Composite – for a better view of the real market unfolding now

The broad market began building the current trade range in early April.  Most stocks in the market are basically flat for the last 3-4 months.  Lots of internal churn – lots of rotation – but mostly a normal summer chop.   The price action Monday went right to the bottom of this range – and then bounced for the last two days.

Note:  we still have 6 weeks of summer 2021 left – maybe a bit more.  I would not think we should be surprised at all if the chop continues.    Volumes are very slow – and most of the desks are on vacation.  So – oddly enough, don’t fret.  Instead, welcome the action.  Why?

Trade ranges create the foundation for the next leg up – all while scaring traders right our of their positions.  Indeed it is even likely that we test the lows again – expect it, don’t run from it.  The result then?  Lower bullish readings, higher fear readings, a quick and ferocious “handoff of stocks” from traders to long-term investors – and then, the long trek up the mountain terrain continues.

We just need to be patient with summer.  All of this is normal.

Enjoy the rest of the week, the weekend, the beach – and friends and family.


Until we see you again, may your journey

be grand – and your legacy significant.