From 900 to 27,000…

Not much surprises me anymore. 

So, here’s the deal: There will always be ugly periods in markets, scary times, crappy statements, and that empty feeling deep in your gut as you wonder if the end of the world really is coming this time. 

All of these things, and every emotion that comes with them, are part of the deal as we climb this mountain together.

But it still never ceases to amaze me how quickly fear can make folks forget the facts.

It shows up every day in the manic / depressive state of investor responses to any red ink.

And if it weren’t so tragic in terms of the impact on long-term investors it would be nearly comical.

That said, it does all serve the very necessary purpose of taking stocks from the weak hands and transferring them to the strong ones.

By The Way...

Do you remember back when the experts were telling us that earnings and revenues would be down? 

How about the unrelenting predictions declaring the May swoon (right before the August swoon) would precede the end of the world?

Then there was the chorus from the ‘trade war’ team singing that it would only make growth harder to come by…

Well, it didn't happen.

Earnings?

That's right, through all the ink spilled on the topic of the quarter nothing really unfolded after all. 

Earnings and revenues were up (yes, up!).

(With help from Dr Ed Yardeni) The Q2 earnings season is over 85% complete for the S&P 500. The results are not remotely close to what seems to be assumed by the crowd.

When compared to the exact same point during Q1 last year the data shows that: revenues are beating by a greater amount; a higher percentage of companies are reporting positive revenue surprises; the earnings surprise is a tad smaller; and the year-on-year earnings growth rate is only 1.4ppts lower…and all despite Boeing’s dismal Q2 results.

Of the circa 426 S&P 500 companies that have reported to Wednesday 7^th August, 74% exceeded industry analysts’ earnings estimates.

Collectively, those reporting have averaged a year-on-year earnings gain of 1.9% and exceeded forecasts by an impressive 6.0%.

Ex-Boeing, Q2’s year-on-year earnings growth improves 1.7ppts to 3.6%.

Revenue?

On the revenue side, 58% of companies beat their Q2 sales estimates so far, with results coming in an impressive 1.4% above forecast and 4.3% higher than a year earlier.

Q2 earnings growth results are positive year-on-year for 66% of companies, versus a lower 65% at the same point in Q1, and Q2 revenues have risen year-on-year for 68% of companies versus a similar 68% during Q1.

Looking at earnings during the same point in the Q1-2019 reporting period, a higher percentage of companies (76%) in the S&P 500 had beaten consensus earnings estimates by a higher 6.8%, and earnings were up a higher 3.3% year-on-year.

With respect to revenues at this point in the Q1 season, a similar 58% had exceeded revenue forecasts by a sharply lower 0.2%, and sales rose a higher 5.2% year-on-year.

Compared to 2018’s stellar results, these mid-season readings for Q2 indicate a continuation of a marked slowdown in revenue and earnings growth rates and a slight deterioration in profit margins - so there are some ripples as we get past the tax bump.

Expect companies to focus in on cost cuts (read: new technology installs).

The Puzzle Pieces

Sadly, these "selloffs" and windows of panic will likely continue to be more and more a part of the landscape ahead. 

We’ve covered it for years and said that the larger the numbers grow, and the higher things rise, the scarier it will feel. 

As for investor sentiment, well, they appear like the final nails in the coffin for the latest swoon. 

No one likes stocks:

Tariffs?

Let's keep this in perspective even though the headlines won't help much as the summer haze thickens:

Yep, there will of course still be very ugly periods ahead. 

We had two major bear markets during the Baby Boomer decades, so we should expect no less in the decades ahead.

There will be periods where you will hate your stocks with a passion and when all investments other than cold hard cash under my mattress will seem to suck.

During those darker moments just remember that in the 37 summers that I’ve been in this business the market has risen from 900 to 27,000 Dow Jones points.