"The future was always more important than the past." 

- Paul Park

In the haze of the Presidential election some folks may have lost sight of the fact that we’re in the middle of an earnings season.

The results of which seem to be coming at us at light speed (and is if they’re on steroids).

With that in mind, I’d like everyone reading this to imagine for a moment that we’ve rolled the clocks back to the beginning of this year - 1st January 2020 – and that we’re all sat round a large conference table together.

And each person has been handed a copy of the following short note which reads:

Dear Everyone

We are deeply saddened to inform you that 2020 will be a year when we set all kinds of new records for all the wrong reasons. In fact, in just a few short weeks from now, we will officially announce that a global pandemic virus has emanated from China and will soon inflict untold carnage on the health of the sick and elderly across the globe. And in response, we will take unprecedented measures to quell the spread of the virus, while simultaneously wreaking global economic havoc.

We will shut down everything that is not essential to our survival. And we will decide between ourselves when each business and organisation will be allowed to reopen, how they will open back up, and at what pace (rolling or otherwise). 

The public will listen to us and suffer the extraordinary consequences of our actions or face punishment (the shapes and sizes of which are still to be decided). Every business will be at risk. Livelihoods will be at risk. Health will be put further at risk. Most everyone’s financial well-being will be under our control. And the future will at times be questionable.

The good news is that we will be happy to let you know when we think it is over.

Happy New Year!

Sincerely,

The Governing Powers of the Planet

Now, of course, some of that is meant to be slightly comical. But only slightly, and only comical when viewed in the context of what has actually unfolded.  

None of it is designed to disrespect the needs of those in danger from the illness. 

My Point?

Now, I’d like to take this a step further and ask you to complete the following questions relating to what you just read above:

1. Given the news we have just received, please tell us where you believe the Dow Jones Industrial Average will be on November 12, 2020? ____________________ 
2. In the same vein, how far will revenues and earnings drop in the S&P 500 year-on-year by the end of the Q3 Earnings Season? _____________________ 
3. And finally, how many years will it take for earnings and markets to return to 2019 levels? ____________________

There’s a lesson hidden somewhere in this mess. And it’s highly likely that not a single person in the room would have chosen the answers below, or anything even remotely close:  

The Answers

1. 29,000+ 
2. Down 8.9% in earnings and down 1.3% in revenues 
3. Less than 12 months

Lesson #2

We must - as long-term investors - focus on the idea that our history is filled with chaos at times.

So far, every single one of the events we have experienced have been overcome by us together.

America is in the business of building, learning, expanding, striving, overcoming, getting beyond, exceeding expectations, and seeding better years ahead than in our past.

And we have proven once again that business is good.

The tough part is keeping the faith that it will happen when the storm clouds are at their darkest.

Lots of Green Shoots

The latest earnings snapshots with only a small percentage left to report, are solid.  

And in a mere nine weeks, Q4 earnings season will begin with the banks LOL:

Note in the first image above, not only were many losses reversed in Q3 after a very ugly shutdown induced Q2 waterfall, but Q4 numbers have continued to see improvement.

And revenue change year-on-year by Q4 is now expected to be basically unchanged (-0.01%).

The first few quarters of next year look healthy, and keep in mind that analysts are consistently underestimating numbers.

By late July / early August or so, of 2021 (only 9 months from now), investors will be set to stare into a 2022 with projected earnings of roughly $198 a share for the S&P 500.  

Rates will very likely continue to stay lower than most fear, setting the stage for multiples to edge higher.

So, you might want to place a multiple of 22/25 in your mind on the $198 figure, leading to an "end of 2022 projected S&P 500 level" significantly higher than where we are now.

All it takes is a bit of patience, discipline, planning, and staying on course.