“Fear incites human action far more urgently than does the impressive weight of historical evidence.”

-Jeremy Siegel


Good Morning,

The title today is all about sentiment.  It is as such because I feel this will be vital as the summer haze seeps deeper and deeper into our minds.  Heck, after last year’s pandemic shutdown summer, by mid-August this year, you may never want to go back to work.

The point?  Read the quote above one more time.  Should we expect chop here and there during the summer months?  You bet.  Indeed, we should be excited if we are lucky enough to get a gut-churning mini-meltdown.  Pray for it – and then embrace it as a launch pad for a significant run afterward.

Below we will first touch on the earnings season just ahead.  The data are all at records – and very likely too low.  After these stats, make sure you study how deeply-seeded fear has become.  Sentiment says it all as the lazy, hazy days of summer await us all.

Q2 Stats Increasing!

Total Q2 earnings for the S&P 500 index are currently expected to be up over 61% from the same period last year on revenues which are expected to be 18.0% higher.  This follows a 2021 – Q1 season which shattered all previous records for growth and margin expansion, with a 49.3% growth rate in earnings YOY and 10.3% increases in revenues over Q1 of 2020.

Here is the inner force unfolding:  When combining the magnitude of positive earnings surprises (90+ miss rate by analysts) witnessed in the Q1 reporting cycle and the consistently steady positive revisions to Q2 earnings estimates as the season approaches, we expect the final Q2 earnings growth tally to be significantly higher than the current expected +61.1%.  Yes, I know that sounds nutty.

It is understood that this growth is outsized because of the comp to the worst of the COVID shutdowns, but there is much more to this story.  The full scale of the margin and tech impact will not be seen until we look back from early 2022 and measure all 4 quarters of 2021 in hindsight.  Besides, the strong Q2 estimates also reflect sizable organic growth, with total index earnings expected to be up +9.2% from the pre-Covid 2019 Q2 period.

Lastly, let’s not forget the pace of increase as 2021 has unfolded:  Estimates for Q2 and beyond have all steadily gone up, with the current +61.1% earnings growth rate up from +50.6% at the end of March and a “paltry” +41.6% expected as 2021 dawned.

–> Embrace the change underway.

–> We are heading into a world most will not understand or expect.

–> The next 20 – 30 years represent opportunity and growth unlike any decades seen before.

–> Cinch that belt tighter and hold on to your popcorn and cold refreshments.

–> The ride will be very bumpy at times – you can count on it.

Now – About That Sentimental View

You know we often include sentiment data to give you a sense of what not to do.  Today we will dig a little deeper – so feel free to review this again over the weekend while you are (hopefully) relaxing a bit at the beach.

First – the backdrop:  

We are less that 1/3 of a percent away from an all-time high in the S&P 500

We are at an all-time high in the NASDAQ

We are 1.5% below an all-time high in the NYSE Composite

We are 2.95% below an all-time high in the DOW Jones Industrial Average

Now…the sentiment.

…read ’em and reap:

Notice in the AAII data out this morning – nearly 60% of the audience is NOT bullish.

The meshes well with the more detailed data of the Fear and Greed Index – tracking 7 different data streams across all market action.

Follow the detailed noted below the image and you too will understand why it is wonderful when everyone is already afraid…

First, note the data is from late in the day yesterday – after the close on a very, very light day in the markets.  Almost no one was active as volume is plummeting across the board.

The snapshot shows the fear reading at 35 – meaning 2/3’s of the audience is, well, shall we say “nervous” about what the future holds.  That 35 is marked with a blue “6” on the image above.  Note the placement of “6” in relation to all the other numbers – and then, let’s dig in:

Number 1 – Back in Q3 of 2018 is when things felt good to the audience – quite good actually.  The S&P 500 was 1,300 points lower that it is right now.

Number 2 – Boy did the audience feel good right before the pandemic – elated in fact with some of the highest readings on record.  The future was wonderful until 4 weeks later.  The market has rallied over 1,000 S&P points since number 2 (inclusive of the waterfall, shutdown panic of COVID).

Number 3 – No one liked the market by late-March, early-April – nobody.  (notice we are not that far away from “3” when looking at “6”). By the way, the market has nearly doubled from the “pandemic low” day.

Number 4 – Nearly matching the current sentiment level at “6”, this was the Q3 “letdown last year – right before a steady march to new-all-time highs unfolded.

Number 5 – Interesting indeed when comparing to “6” (now) was the early December time period when the S&P was 500 points lower than it is now…

Number 6 – Right now the crowd is incredibly fearful, with significant angst clearly just under the surface.  This is more than evident whenever we get a day with red ink over a few hundred points.  Recall in a DOW of 34,000 – a few hundreds points is a blink in time.  Sooner than we think, a thousand points in a day will be normal in weekly action.

Most important?  Note the steady loss of sentiment from point 5 to point 6 – now.  All year long, sentiment has been deteriorating as the market rocked itself up the mountain of fear in place.

Were one to look at these data points alone – one would readily assume we have been in a downtrend all year long.

The stage of set for something very positive in the months, quarters and years ahead.

Pray for some summer chop – and embrace to consistent levels of concern while all the experts espouse all the dangers ahead in vivid detail.

Enjoy the summer – opportunity awaits for the patient and disciplined investor audience.

Until we see you again, may your journey be grand

and your legacy significant.

God Bless.

You’re missing out!

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