Great to be back in earnings, because at the end of the day, “it all comes back to earnings”. Rhetoric and pandering aside, the stock market today is priced based on expectations of earnings in the future. To that extent, they are coming in ahead of expectations by a wide margin. Companies beating both the revenue and earnings (top and bottom as it’s referred to in market speak), were 66%, which is historically 47%. We’re early, but hoping this trend continues.
Headlines are focused on a drop in the President’s approval rating which tends to have high correlation to gasoline prices, which from CNBC reporting hit $5 per gallon in California.
The first Crypto Futures ETF was launched last week, which resulted in a few questions to the office about thoughts on crypto. This question is generally received when something good is happening, like an all time high in Bitcoin prices or the launch of a new fund. Crypto is not regulated so it’s not something that I could recommend even if I wanted to. Although I acknowledge that there is a need for a digital currency, I will tell you I view this as a typical bubble. There is no fundamental value in any of these outlets. Sure, if you buy it and it goes up and someone is willing to accept it at the spot price you can make money, but there is no fundamental value holding it up, except for other willing participants. No government, no balance sheet, no products. So again, I say, for those that have and will make money in it, congrats. However, until it’s a platform that has the consumer protection measures that regulators like the SEC have over companies that accept private shareholders, then I think it’s the proverbial game of hot potato.
Onto the markets. After our first 5% pullback in over a year, the markets acted the same way they have in previous periods and bounced back. From a technical standpoint (meaning charts), this move was a classic consolidation period after a nice long run higher. The question from here is whether we can breakthrough the previous highs and make that our new base line.
In support of my belief that we can continue higher from here is an indicator I follow called the advance/decline line or A/D line. It shows you the breadth of the strength of a market. As the overall market declined the A/D line actually shows some strength, which means there were a greater number of securities showing strength, even through the decline, which is good for overall future momentum.
To dig a touch deeper in the weeds, the percentages of companies going past their 50 and 200-day moving average is moving north. If we can continue to see companies do this, (especially past their recent highs), it becomes a bullish sign.
In summary, I like where we are positioned moving into year end, which historically has been a good period for the markets. With that here’s the buy/sell.
Although we are still above the “sell” line (as we have been for most of the past 12 months), I still feel that with a low-rate environment, the multiples we place on the market can be sustained above 22 times. As we get closer to the first rate rise, multiples will likely come down.
Health, Wealth, Family, Fun Serve…. This week I listened to a podcast, that reference a speech given by Professor Randy Paush back in 2010. It’s been downloaded millions of times and is probably one of the most sincere things I have ever seen. I remember watching it a long time ago. But when I re-watched it, I had a whole different emotional response from the first time. Although I knew what this speech was about, and what the outcome was, it affected me a different way. If you haven’t watched this before, it will be a reality check, if you’ve seen it before I’d be interested if you have a different response like I did.
Click here to watch or copy & paste the following hyperlink:
The Last Lecture before his Death – Bing video
Mick Graham, CPM®, AIF®
Branch Manager Raymond James
Financial Advisor Melbourne, FL
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