Investing for the long-term, while successfully accumulating wealth, will be one of the toughest games you’ll ever play. 

The journey is as exciting as it is humbling.

In fact, at times it will seem to be begging you to just sell up and put your money in the bank where it's safe....

And that thought is as enticing as it is wrong.

The Data

The latest earnings season has kicked off and the numbers are being run.

It’s gonna be a barn-burner and set records in every sense of the word.

That’s because sentiment is in the tank again (a very good thing) and a very thick veil of doubt will be plastered all over every report; no matter how good it is. 

They’ll blame Russia and consumers and the price of something or other, throw it into the media’s divining bowl and flush out the headlines.

You’ll see the words; North Korea, Syria, Trump, White House, Election Meddling, Interest Rates, the Fed, Deficit, Mid-Term Elections…yada, yada, yada…

And the conclusion will be that it’s all going to hell.   

So, what’s really en route for upcoming earnings? 

Well, first let’s remember the remarkable start to Q4 of 2017, where earnings showed 77% of the S&P 500 came in above consensus on revenue versus the normal 60% "beat rate."

That’s not just net earnings, that’s revenues too.

Also, that was before the US tax act, and Q1 of 2018 has started off just as strong. 

And yes, we do need to let about half the data roll in before drawing additional conclusions. But until then here’s the latest from Thomson Reuters I/B/E/S by the numbers:

  • Forward 4-quarter estimate: $162.02 vs. last week's $161.92
  • P.E. ratio: 16.4x
  • PEG ratio: 0.83x
  • S&P 500 earnings yield: 6.10% vs. last week's 6.22%
  • Year-over-year growth of forward estimate: +19.86% vs. last week's 19.82%

Also Noteworthy

Against this backdrop of powerful financial data there’s an audience of weary investors, tired of the bad news and ready to once again throw in the towel.

Now, we can fret all we like but trade ranges stink. 

The good news about this one is that the S&P 500 is still range-bound between the January 26th high of 2,872.87 and the February 9th low of 2,532.69. So, until one of the range extremes is broken, the market action is somewhat defined even though choppy.

The better news is that this trade range is doing exactly what it is supposed to do: Making everyone and their brother nervous again.

For reference, the AAII investor sentiment data last week showed pessimism had risen again to over 40%. 

Add in the idea that only 26% were "bullish" and you arrive at the idea that nearly 3/4's of the crowd no longer likes the market for the next six months.

It’s both hilarious and sad.

But the best news of all is that it’s very tough to experience a real bear market with that kind of pessimism already in place.

And it provides at least one a good lesson about the long-term; after a 20% year for the S&P 500 in 2017, and with little volatility for the last two years, a minor correction in stocks quickly pushed investor pessimism to over 40%. 

That’s a real insight into the investor psychology of today.

Mike Williams
Founder and Managing Partner of Genesis Asset Management, New York

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