Tis the Season

growing seedling

April 19, 2022

Tis the season of earnings. Oh yeah, I love this time of year. The market passes out grades for company performances for the first quarter and sets some expectations for the rest of the year. As you know my favorite quote, “it all comes back to earnings”, which holds timeless truth. This current period involving Russian conflicts and Inflations scare, is probably going to keep earnings in the back of the mind for a little longer. 

I’m looking at this quarter’s earnings report to guide me in my current belief, that earnings growth will maintain a positive trend for the next few years, albeit it at a slower pace than we have seen. If this happens then I’m very confident in my medium-term prediction of a choppy first half of the year, which sets us up for a good second half of 2022, and a strong 2023 for market returns. 

Some have asked me, if you have that opinion why wouldn’t you get out of the market and sit back and watch the volatility from the sideline? Answer is “because it’s my opinion”, and you know what they say about opinions. Mine, just like anyone else’s out there, will either be right or wrong. We know based on over 100 years of markets, the market is a crapshoot in the short term, but predictable in the long term. 

These times of volatility and daily up and down swings, which end up being a few months or more of sideways movements, are frustrating, but essential. This is how leadership changes in the market. By leadership I mean which sector is ultimately pull the whole market forward. Let’s do a little refresher on the sectors of the S&P 500. There are 11 (see chart below). 

Companies that are publicly listed are categorized into sectors based on their primary business activities.  This is important because it allows investors to isolate stocks of a specific interest and help manage risk by diversifying your portfolio.

Sectors change leadership all the time, for many reasons. However, what is a nice trend to be aware of is that stocks within each sector tend to move somewhat together as well. For instance, if a bank reports some good news such as mortgage growth is very strong and profitability is above expectations because of it, you will likely see that individual stock go up, along with the whole sector. Investors then believing the effect will be good for all the banks.

Taking a look at the chart above, first glance might tell you that man, I should’ve invested in Technology stocks for the past three years and stay away from energy. Now check out the chart below, Energy has led (pretty significantly since the start of the year), while the overall market struggled.

Generally, periods of consolidation (fancy word for sideways market), it’s common to see a change in leadership between the sectors. Sometimes it’s a take over from the sector running second, other times it’s the one that has been beaten. 

So, as we get embedded in the second quarter, and digest the earnings, I would not be surprised if we see some more “consolidation”, or even a pullback to the recent lows, setting us up for some gridlock in the midterms, then the third year of the Presidential cycle!!! Yippee


Rugby update: Unfortunately, the Red Eyes came up short in the championship game. Beat in the final seconds 30-28. Travesty of justice. Thanks for everyone who reached out. I’m going to start a GoFund me page for my counseling, (ha).  

Here is a pic of my fam at Easter dinner. The older they get the harder it is to get them all together, so I’ll take it whenever I can get it. Whoever said the older they get the cheaper they get? That guy is selling ocean front properties in Omaha. 

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. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. 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.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market

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