Here Comes the Flood…

“A plan without action isn’t a plan, it’s a speech.”
- T. Boone Pickens

Things are going to start heating up over the next few weeks.

The largest section of the Q4 earnings season bell curve is en route.

Well over half of all S&P 500 companies will be reporting.

And so far, they’ve "knocked it out of the park."

Sure, that could change, but it’s highly unlikely. 

To give you a sense of the dynamic changes which the pandemic and the subsequent government shutdown has created in business, here are some comments from Basset Furniture's CEO in their call on Thursday:

"Looking ahead, we plan to invest in technology and our domestic manufacturing and logistics platforms in 2021, while maintaining a strong balance sheet and returning capital to shareholders when appropriate. The leaner, smarter approach to our business that was borne in the early days of the pandemic are lessons learned in 2020 that will not soon be forgotten.”

They sell furniture!

Folks, every single business across the land has been forced to recognise that the boundaries changed back in March / April of 2020…forever.  

And a very new, advanced, and opportunistic "normal" now lies ahead. 

The New “New”

Here’s another sign.

I got a call from Apple Business Group on last week.  

Their message was fascinating - even for Apple.  

The young man introduced himself and said he was calling "because all of us here at Apple recognise that the shopping and buying process has changed due to the events of 2020..." And he wanted me to have direct contact "with someone who can handle everything one would need just as if they were in the store."  

He closed out by saying, "We all know that the retail stores of Apple have now really just become local showrooms to browse, so I am here to make sure you can order any items you need direct...as though you were standing at the register."

Fascinating indeed. 

Choices

Investors have two basic choices as we conquer the landscape ahead and climb to that expansive horizon.  We can:

• Adapt, remain flexible, be disciplined, and stand patiently through the storms, or 
• Stay afraid, angry, dismayed, concerned or any other emotion which blocks us from forward movement - and wake up one day at Dow Jones 60,000 (about double what it is just now), coming out of a fog and wondering how we got here.

Am I making this up?

Well, we still meet folks who did the latter in March of 2009a and are still not "feeling safe" - even as the Dow Jones went from 6,700 then to 31,000 now.  

We would argue the same levels of rocket fuel have been loaded into the ship now on the launch pad.

Disregarding the massive shifts technology is bringing to every corner of the business/service/retail world will be a dreadful mistake as the next 5, 10, and 20 years unfold.

As for Now?

Earnings, as previously noted, are soaring. And margins are right behind.

Thank the lessons noted above, and then buckle up and pray for corrections as they become fewer and farther between.

They will happen fast, scare the majority, and recede and be erased by growth.

To give you a sense of what time and evolution do to "terrible crashes" in the markets, note the S&P 500 chart below, and what the October 1987 Crash (red star) and the GFC of 2008/2009 (in blue) now look like:

The Lesson?

There will be a time in the future where the Crash of '87 will not even show up on the chart, and the 2008/2009 GFC will look like the 1987 Crash looks like now.  

And then? 

The next monster will show up.

Earnings Before the Flood?

We are off to a great start in the Q4 earnings season, with a historically high proportion of the reporting companies not only beating consensus EPS and revenue estimates, but also providing positive and reassuring guidance and commentary about the current and coming periods. 

This is helping sustain the positive revisions trend that has been in place since July 2020, as the chart below shows.

And the busy season is not even here yet:

Question… 

Had we sat in a room a year ago and been told that in the next 12 weeks, the entire world would be forced into a global shutdown due to a pandemic, what percentage would you have thought earnings would be down by - a year later?

I can almost guarantee no one thought "about 5%."   

From Markit Research

• The Philly Fed Manufacturing Index rebounded 17.4 points to 26.5 in January, much stronger than expected, after dropping 11.6 points to 9.1 in December. 
• The index has been in expansion since June and was at 13.7 a year ago (before the shutdown). Gains were broad-based. 

What’s even more compelling for the patient, long-term investor is that these are not signs of a "slowing" U.S. economy.

Many elements in the vast volume of economic data are now actually higher than pre-pandemic levels.

Oh, and sprinkle in the $18+ Trillion in US consumer deposit accounts.

Do NOT let the media mayhem scare you away from what’s ahead.

We’re just now coming out of the starting gate, and the race is on for the next 30 years or so.