It’s Not Armageddon. It’s Just July…

According to CNBC on Monday, prices “plunged,” and the day was filled with experts giving all parties lots of reasons for “why it happened.”  

Just days later and those reasons seem to have all mysteriously disappeared. 

But rest assured, as soon as they can figure out how markets are also bad for you because they’ve essentially returned this week to where they started, the next drama will find another baseless foundation.

Folks, July is almost always choppy after a “big up” in the first half of a year - Delta variant or no Delta variant. 

And in fact, many things have actually never been better.  

First the AAII Latest Data

Notice above that, 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.    

But the message here is that 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 that is expected to be choppy after a major move up for the first half of the year.  

There’s More…

This is the snapshot at the so-called “perilous” lows reached on Monday:

Yep, that’s a “16.”

It means that 86% of the market did not like stocks when they were 1,000 points lower than they are now.  

And with stocks basically back to where we started the week – choppy as it may feel – the latest data shows this:

Yep. That’s now a “24.”

That means it’s actually 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.  

Meanwhile…

Bonds sure seemed to have reacted to the fear wave, dropping all the way to this on Monday:

Ehh, but then they rallied all the way back to this today:

This reading 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.  

It’s the silly season, folks. Don’t overreact, even when things are choppy.

Speaking of Earnings…

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%.

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 People Selling…?

Well, I suspect it’s because we’ve entered this strange, but deep-seeded, perspective that mandates “All things end badly,” as the concept of “peak” plays havoc with common sense.

It’s a perspective that destroys your ability to build wealth.

The bottom line is that we are approaching $200 / share in earnings for the S&P 500 in 2021, and the numbers for 2022 are just beginning to “show up” in conversation.

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?

Home On The Summer Range…

The choppiness we suspected is upon us. 

It doesn’t feel good short-term – selling windows never do.  

But is has created what we wanted 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.