You can blame the calendar if you start to feel a flood of boredom once the corporate earnings announcements end.

Just remember that this is the haziest of the summer months and has a reputation for volatility.

And we should be praying for that type of market activity.

So while Technology is serving as the latest whipping boy in the press, look out for values in the fastest growing areas of our economy.

And if you think things have changed in the last 5 years - and boy have they – it’s nothing by comparison to where we’re headed in the next 5 years. 

Corporate Earnings?

Earnings are solid.

Earnings are growing.

Have a look at the S&P 500 earnings data (Source: Thomson by the numbers):

  • Forward 4-quarter estimate - $169.24 versus last week's $168.88
  • PE ratio: 16.7x
  • PEG ratio: 0.75x
  • S&P 500 earnings yield: +5.97%
  • Year-over-year growth of forward estimate: +22.27% versus last week's +22.23%.

The year-over-year growth of the forward estimate hit an all-time-high of 22.27%.

Keep in mind that the last bullet point is the forward estimate, or Q3 '18 through Q2 '19.

Expect this pace of growth to subside as we get closer to Q1 2019, and looking forward from that point we should expect a return to more normal levels.

Right now, the market is simply digesting the process - hence the choppiness at times.

The “Internals” are Improving

Dares Chart1

The chart (above) was put together in a recent Bloomberg report. 

The S&P 500 has consolidated now for a few weeks, and while seasonal headwinds and the summer haze should keep things in check over the near-term, the Advance-Decline (A/D) line suggests there’s strength ahead once everyone is back from summer break.   

I’ve also added a red line to the bottom part of the chart as a comparator for you. 

Note: While prices have stayed in the trade range capped by January highs earlier in the year, the internal strength in the market is expanding. 

Historically speaking, that reading has hinted at much more run left in a bull market, which is far away from the fear-drenched headlines of late.

The Lesson? 

Pray for a summer swoon in August and then use it to your advantage where possible.

Investor Sentiment

Bullish Sentiment in the AAII data wilted again, which is a good thing for long-term investors. 

We have only been lower than the current readings a few times since 2009. That should tell you a lot about where the individual investor mind-set is at the moment.

And that’s fantastic news for long-term investors.

In fact, cross your fingers for even lower numbers this week:

Dares Chart2

If you think about it, anytime you can get 70% of the crowd to “not like" the markets in general - even as the averages are chopping just below all-time highs - it's a good thing.

It means this bull has a long way to go before we reach anything even close to the euphoria that often precedes a crash or recession.

So it’s my view that the long waves of change and improvement ahead are far better than anything we have seen yet.

Folks, the tough trades are done by remaining confident in the long run, and the easy trades are made by being skittish, bearish and/or afraid.

When it comes to investing over time, easy never wins.

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