Just Like the Sky, Earnings Are Not Falling....
On the first day of trading in 2018, the NYSE Composite (broad market index) closed at 13,103. On Monday of this week - 21 months and 18 days later - it closed at 13,089.
The 2017 market year had ended on a high note. There was anticipation of rising earnings ahead and improving economics.
AT the time these expectations were driven mostly by the new tax bill.
Few imagined we would be sailing into a trade range with a huge wave of "problems" about to beset the horizon of thought for the crowd.
And when 2017 ended, the S&P earnings were $124.51.
Today, as we peer into the mist of 2020 and beyond, while saddled with this “terrible Trade War” with China, the number tilt toward $172-$177 for the S&P earnings next year.
Here’s the more detailed view of S&P 500 Earnings data (by the numbers - source: IBES by Refinitiv):
- Forward 4-quarter estimate: $174.75
- S&P earnings yield: 5.85% vs. last week's 5.90%
- TTM estimate: $162.65
- S&P 500 TTM earnings yield: 5.45% vs. 5.47%
- Year on year growth using TTM estimate: 7.44% vs. 7.71% last week
And, with a little scribbling on the back of a napkin, you’ll suddenly find that earnings are in fact not falling.
They’re actually rising, and at a pretty solid pace at that; especially when considering that we have a "Trade War" going on.
Now, keep in mind that the fat part of the earnings announcement bell curve will unfold in the next three weeks (or so) ahead.
Lots of news will flood the media waves and all sorts of expertise will be poured into your brain - with a firehose.
The bigger picture is simply this: Things are rising, not falling, no matter how much the media monster and scare-mongering wants you to believe otherwise.
Meanwhile, back in the swamp...
The psychology of this market has certainly gone on tilt, losing site of the larger setting at hand.
You and I can count on one hand (with three fingers left over) the number of months which have seen higher closes in the overall markets than we did last month (the end of Q3 2019).
And yet - the investor audience has rarely had such low levels of confidence about the future.
Altitude sickness has struck again.
And by the way that’s all good news:
The above is a nice chart that helps to highlight this stunning reversal in weekly bars, covering all the way back to the peak before the 2008-2009 Great Recession.
Note the green band at the pre-2008 peak - and how high the AAII data in blue was.
Then note where we are today - and how incredibly low the AAII data has been.
Our 8-week moving average chart from just two weeks ago hit a multi-year low:
The purple star in this second image above is to mark the beginning of 2018.
The crowd felt pretty good then, just as markets were sent to enter no man's land for nearly 22 months (so far).
To top that off...
We all have never been this wealthy!
We should be insanely grateful about that.
And yet, we are terrified of what's next.