Thank you, sweet baby Jesus. We are back in earnings season, which is the time of the quarter that things begin to make sense to me, before headlines, PolyTics and Talking Heads take over again. Last week the banks led us off with knock out earnings, better than estimates, which will continue to push the overall earnings estimate for the S&P 500 higher.
Let’s do a quick recap on the past few weeks:
- Inflation. I think it will be an issue at some point, but we are a long way from it. Don’t worry so much about CPI numbers, they are coming off a crappy year over year number. Focus on wage cost growth. That will give you the indication that something may be brewing.
- Taxes. It’s likely that we see a rise in the corporate tax rate, probably either a change in the top tax bracket, or maybe even a new tax bracket for the $1MM plus of income. We will hear a lot about it as both sides try to rally public support for it. Either way, companies will figure out the best way to make money in any environment.
- The 10-year treasury. The overall bond market is telling you that the economy is not as good as we all think it is which is why rates have dropped over the past couple of months. The flattening of the yield curve is good generally speaking for the growth orientated companies and makes it harder for the banks to make money. We are seeing these rotations happen week over week, all the while watching the major indexes (S&P 500) touch on new highs.
So, where to from here?
I’m a believer that we are in the mid stage of a multi-year bull market that started in 2013. Long term investors (which is all of you), know what happens in the near term should not be of any consequence. I do think shorter term we are in for some consolidation here after an equity market rally of 95% in the past 483 days. However, I don’t “think” it will be a normal consolidation where you see a 10-15% pullback. I think it will be more rotation between the sectors (Tech/Financials/Health Care/Discretionary etc.) that will give you both a continued hold steady or even slight increases, all the while presenting opportunities if you trim off the top of what’s done well and add that to what has not.
Short and sweet this week as I deep dive earnings.
Here’s the buy/sell. Have a great week.
Mick Graham, CPM®, AIF®
Branch Manager/Financial Advisor at Raymond James in Melbourne, FL
Any opinions are those of Mick Graham and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Keep in mind that individuals cannot invest directly in any index. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise.