The Market Chop Dead Ahead
The bottom line is that the summer doldrums are taking hold.
DO NOT be surprised to see increasing market chop and a fog hanging over the psyche of investors in how they view the markets.
Their vitriol is unlikely to subside soon, but the economy is repairing itself in ways that most are ignoring.
Earnings season is a prime example of one of the blind spots - so far it’s better than expected, though the numbers are ugly.
But we knew that would be the case through the shutdown.
Some Quick Stats
The numbers will be flooding in this week.
And the S&P 500 earnings patterns for Q3 and Q4 2020, and into early 2021, remain positive.
The 2021 estimate this week came in at $163.31. That’s the 7th straight week we’ve seen that number winding up in the "$163" area, and it looks to be stabilizing.
Looking at the "expected" S&P 500 EPS and revenue growth for Q3 and Q4 2020 gives a broader perspective on the forward data as "The Mulligan Year of 2020" unfolds.
Note also that S&P 500 earnings patterns into early 2021 remain positive as well.
Refinitiv data shows the "forward 4-quarter" estimate rose for the third week in a row this week, when in normal times (yes, I know, nothing is really normal about 2020) there is usually a slow, downward drift going into the coming earnings quarter (so that analysts cover their a**es).
- This week: $143.79
- Last week: $143.25
- Two weeks ago: $142.98
While that's just one metric, it hints that the heavy downward pressure after the late March 2020 shutdown panic on forward estimates may indeed have been too severe.
As the data actually unfolds, the Street is pulling up their forward numbers albeit slowly.
The 2021 S&P 500 EPS estimate remains above 2019's actual EPS of $162.93 in a world where the 10-year bond is sitting at a P/E of 172-ish.
While the doldrums await us as the summer progresses, just beyond the annual fear of an August market swoon so to does victory for the patient investor.
The game plan then is for to take aggressive advantage of any summer swoon into the first weeks of August.
And if you think that sounds crazy then check this data trend noted below showing how scared the crowd really is, and how valuable that fear will be for the future.
Like it or not, sentiment drives the short-term waves, while Demogronomics© and The Barbell Economy© drive the underlying strength and current.
As we peer into the final phases of reaching the new normal it’s CRITICAL to keep in mind that:
- December 1990 is the last time we saw this many readings in a row where the spread between Bulls and Bears remained consistently negative.
- In other words, when the Dow Jones was at 2,500, the world in the eyes of the bulls looked very dark - like staring into the abyss.
- That was right before things exploded to the upside.
Burn that data into your brain for the chop that’s dead ahead.
As I’ve said for several weeks now, the tech sectors could sure use a corrective wave to spook even the small percentage of bullish investors away.
That’s unfolding and it will present brand new opportunities for the future.
Whatever you do, don’t buy into the constant droning on of experts telling you we will not make it through this shutdown.
The 2020's and 2030's ahead are the Generation Y decades. And the rocket-ship driving that expansion will steadily become "everything tech."
That includes all the stuff we haven’t even dreamed of yet.