It’s Tough to be a Bear

We are now right in the middle of one of the two busiest weeks in the earnings season. 

So, before the sun sets on Friday, a third of the S&P 500 will have reported in this week alone. 

And some of the knee-jerk shenanigans are already apparent. 

Look at GOOG, MMM or CSX.  In the last 5 days, all of these businesses reported record results. 

Now here are examples of companies whose stocks have been around forever. 

They have created billions and billions of dollars of wealth. 

Yet, on a humid summer day investors of all stripes will react in a manner that erases all that long-term effect because of something like, "ad costs were higher." 

I mean seriously folks. Get a grip.

This is what I meant last week when I wrote here, "I would not be at all surprised to see a bit of buy the rumour, sell the news confusion" that is becoming the standard in earnings reactions.  

Absurd? Yes. Avoidable?  Uh, no.

Long-Term Focus

In the meantime, there are a great many other elements unfolding that continue to be solid signs of the months, quarters and years ahead. 

Economic stats, sentiment, retail sales, ISM's, PMI's, LEI's are all at or near record levels.

Let's review and get away from this often-wasted emotional attachment to 90-day events (quarterly earnings charades - I mean parades).

A little over 26% of S&P 500 companies have reported Q2, 2017 results. 

Hidden in the wasted hype is that their revenue and earnings ‘surprise data’ is better than it was at the comparable point of the Q1 season.  And remember, Q1 was an easy beat since it was compared to what was "the worst start to the market in the last 80 plus years" in Q1 2016.

In the S&P 500, 128 companies have reported. 

About 73% have exceeded industry analysts’ earnings estimates by an average of 6.6%, with an average YOY earnings gain of 16.0%. 

This is bad?

For revenues, 72% have exceeded sales estimates so far, coming in roughly 1.3% above forecast and almost 4.0% higher than last earlier. 

Of course, you can expect these figures will adjust as more Q2, 2017 results are reported in the coming weeks. 

Even with that expectation in mind, the early results are what you might describe as ‘encouraging’. 

Tough to be a Bear

Yep. Sure. I know. There will be a crash, a correction, a setback, a ‘surprise’ along the way in the years to come. There will be many of them when it comes to market averages.  Scandals will abound, products will fail and someone will get sick from food served at restaurant chains.  

Please note though that while the media hype-fest has become expert in pushing all the right investor crown buttons, these events have been going on since the beginning of time.

Try this: List all the things you are afraid of. 

Now, if you’re an advisor have your clients do the same thing.

Look at the lists and know that every single one of these things has already unfolded over the last 35 years, while the Dow Jones went from under 1,000 to over 21,000. 

So keep these things in mind:

• The Barbell economy – where the Baby Boomers are handing over the economic reins to the even larger Millennials of Generation Y - is real
• People drive markets
• The US had excellent demography - the best in the developed world
• Earnings are at Record highs
• Stay focused on long-term
• Be disciplined enough to stick with your investment strategy

And perhaps most importantly, stop comparing your results to "markets." 

Your mind will always find one thing that’s doing better than you are, and it will go for the top dog; selling what is deemed to not be working short-term.

That too has been happening since the beginning of time. 

What’s Next?

More of that nasty old Q2 earnings season, I’m afraid. 

While we etch out new highs on that front, entirely upsetting the apple cart, the season will end right smack dab in the middle of the worst of the summer doldrums. 

Check the volumes this week. They are falling off a cliff as the second string exits for the doldrums of August.

It always works that way, and this summer will be no different. 

August is for anything but paying attention to the headlines. It's already a thin crowd and now and it will get thinner. 

Volume will fall further and choppiness could very well increase as the robots and algorithm traders fight it out for pennies.  

But we’re in good shape out there.

That’s why it’s so tough to be a bear.