"Well alas we've seen it all before, Knights in armour, days of yore, The same old fears and the same old crimes, We haven't changed since ancient times." - Mark Knopfler,Iron Hand

Markets climb walls of worry, folks.

And even though that thought has been around for a long time it’s often overlooked as being “too simplistic,” especially when investors are afraid.

The point here is that markets are doing what they’re supposed to do; taking the fewest number of investors possible along for the ride.  

Corrections and panics keep make that objective into market reality.  

So, expect more chop (at least for a little while longer). And when we do have panics like we did in Q4, taking some time to once again find equilibrium is no bad thing.  

In fact, it’s very helpful to let things sit idle for a bit, because that builds the wall of worry even thicker and higher.

The Market Stats

The latest S&P 500 Earnings data (Source: I/B/E/S by Refinitiv):

  • Forward four-quarter estimate: $170.01 vs. $170.98

  • PE ratio: 15.6x

  • PEG ratio: 3x

  • S&P 500 earnings yield: 6.38% vs. last week's 6.40%

  • Year-over-year growth of forward estimate: +4.9% vs. last week's +5.5%

Let’s keep in mind that $170 number above is likely to dip closer to $168 or so, and then experience an H2 bounce back as CEO's set levels to beat later.  

But here’s the way the media produced the same report from FactSet:

Screen Shot 2019-01-30 At 16.47.06

Now don't worry if you feel confused by what’s being said above, as one set looks forward and the other looks back. Both eventually get to the same spot.

Here’s the key: I’m intrigued by the last bullet point in the FactSet release.  Note they seem to be wondering why the 20% growth stopped happened by referencing how it’s the first sub-20% growth quarter since the end of 2017.


Does anyone think that the tax impact was really supposed to last for more than four quarters in some huge way?

Don't let this fool you in the long run.

And Now?  

Last week, as earnings began to trickle in at a steady pace the markets meandered back and forth and then ended the week at just about where they started, with a tiny drop in the averages.  

Lots of internal skirmishes unfolded as various companies either prepped for bad news, or delivered it.  

Oddly enough the news still delivers data as though a massive part of the crowd expected we would see a second year of 20% year-on-year earnings growth.  

If you’re not laughing then you should be. There was only one tax cut, and its effect unfolded over four quarters, and then ended last quarter.

And next week (and the two weeks after that) will be the fat part of the bell-curve with a large flow of earnings reports coming in, so we should expect continued choppiness.

Self-Fulfilling Stuff

The worst part of a panic is often not the panic itself, but the after-effect.  

There is a self-fulfilling nature to the panic and our reaction to it can often cause the "the thing we feared most" to happen.

In other words, if you fear the panic you slow your movement forward on what is considered many seemingly small fronts.  

People do it as consumers.  Companies do it in capital investment.  

We can indeed cause a recession by our actions when none would have occurred otherwise.

Better to be patience stick around for the ride.


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