On the Road Again

windshield view while driving

November 8, 2021

We are roughly 75% through earnings season and around 80% of companies are beating estimates, which although was somewhat expected is providing comfort to those of us that are a little concerned about the valuation of the overall market. Originally when I put my $200 estimate of earnings on the S&P 500, I was a lot higher than a lot of the analysts on Wall Street, now it looks as though earnings may come in between $205 & $210. 

If I picked the middle of these estimates and applied the 22 multiple, that would get my year end target to 4565, which is right around where it is trading at the time of writing. Now, I’ve stated a few times, that although a 22 multiple is historically high, with low rates and unprecedented stimulus this multiple may actually be light. 

The result on the stocks that are reporting beats are seeing marginal movements up, mainly due to expectations already being high, however the stocks that are not beating earnings are getting crushed.  It’s a net marginal positive, just due to the number of companies that are beating estimates.

Now why does this matter? Because earnings are the forest through the trees. It’s all that ultimately matters when investing. All the noise lately with Debt Ceiling discussion, billionaire tax discussions, Infrastructure package and how much of a child tax credit is paid out. The launch of a Bitcoin ETF and how light Santa’s sleigh will be this year because the elves are not making semiconductors quick enough, can distract our attention away from how we make money in the markets.

We quickly recovered from our first 5% drop in S&P 500 in over a year getting it back in around 10 days, and we again are making new highs. I expect shorter term that we could see a strong run into the end of the year, with more normalized volatility, MEANING WE WILL GET MORE OF IT. Normal volatility looks like 3 or 4 5% pullbacks per year, with one of those pullbacks being greater than 10%.  As supply constraints become more normalized so too should market volatility. Remember through Volatility creates opportunity!!

It was great getting back out on the road last couple of weeks for some face-to-face meetings. First trip since Covid. My biggest surprise was the shock I received in response to my thoughts this bull market could have many years, if not a decade left. Yes, I still think we are in the midst of a secular bull market.  They tend to last decades not years. I’ve argued for some time that this one started in 2013. Aside from Bitcoin, and perhaps one electric car manufacturer, I don’t really see bubbles forming in the economy. I’m looking for earnings to continue to grow through this easy money environment. Inflation may be an issue that impacts this run, but not anytime soon, in my opinion.

For those of you like me that are more visual earners, here are a couple of charts I like to show that highlight to me that there is nothing out there to send the economy into a recession anytime soon:

  1. LEI or the Conference Boards, leading economic indicator index. It’s been a great predictor of approaching recessions for decades. It’s the combination of 10 different economic indexes all graphed neatly together each month. It’s still producing positive numbers.

2. Yield Curve. Another indicator of a concern in the overall economy is when the long end of the bond market becomes cheaper than the short end. Just take a look at the chart we put together showing bond yields just going back two years. Leading into the pandemic the market was already showing fear signs, with an inverted yield curve. Funny enough, it coincides with the last time I bought a money market fund.

3. The spread between BBB rated bonds and AAA rated bonds. When investors get scared, they run to safety. In the bond world that’s generally U.S. Government bonds or AAA rated bonds. The spread between them is the bond risk premium. Today the premium is bouncing around the lowest levels we’ve seen.



Just finished a book by Sergey Young, called the science and technology of Growing Young. Fascinating read from a guy who started his career in the investment world and is now putting a large part of his wealth into a fund designed to find the next breakthroughs in human longevity. Some mind-blowing technology already exists today that really has the potential to extend human life not by years, but by decades. Sergey firmly believes that our cells have the capacity to provide a healthy overall body for 200 years. 

Aside from the sci-fi discussed in the book, there are some great practical measures that one can take today to greatly increase life expectancy. Stats on the percentages of diseases that are beaten with early diagnosis is astounding. Then there are the common themes Im reading about in all other health related books like the importance of sleep to heal the body and produce human growth hormone, and the role gut health plays on the overall body.

My takeaway was how most of us view and use the current medical system. Medicine in its current format is reactive. You don’t feel well, you go to the doctor. It should be called sickcare not healthcare. In a world of living to 200, the opposite is true. Prevention is the focus and the norm. There are a number of home tests, wearables, embeddable, and ingestible available today at very reasonable prices compared to years past that can identify problems today that tend to manifest over years, and the number of these tests are growing every day and getting cheaper. I’m sure one day we will have showers that scan our bodies, toothbrushes that check saliva, and toilets that scan your…you get the drift. It’s not a book just about living longer, but living healthier longer, and that’s what I want for you.

With all that said, I’ve now increased the buy/sell graph to go out 100 years!! (Just kidding). Have a great week and as always feel free to call with any questions.

Mick Graham, CPM®, AIF®
Branch Manager Raymond James
Financial Advisor Melbourne, F

Mick Graham, CPM®, AIF® Branch Manager Raymond James Financial Advisor Melbourne, FL

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Mick Graham and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Individual investor’s results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.

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