Earnings Make Everything Taste Good
My, how we have short memories! It was just a few weeks ago the stock market was mired amidst the “pre-earnings nap” period. If you recall from my posts, this occurs every quarter starting the last two weeks of the quarter and continues until earnings are released 2 weeks in to the new quarter, Mid-April, this time around.
The market takes a proverbial “nap” due to what is called an “Earnings Blackout Period”. This is when public companies and their employees are prohibited from discussing anything about their company until they have released earnings.
So, during this time when investors have little financial news to digest, the 24 hour news cycle takes over and people turn to the headlines, and we all know how “good” the news in the headlines is.
However, when earnings begin to be released, everything starts to taste better. And here we are again, in the throes of earnings season with multiple corporate releases every day. And guess what? Gone are investor fears and anxieties of Isis, Russia, the wall with Mexico and a trade war with China. And for good reason!
Earnings have been strong so far. According to Thomson Reuters, 79% of the S&P 500 companies that had reported surpassed earnings expectations. Meanwhile, 83% of those companies topped sales estimates.
Of course that doesn’t mean it’s smooth sailing. It never is. There are always obstacles, but this helps you to understand the cycles. The biggest concern I have at the moment is rising interest rates and a possible inverted yield curve.
We all know rates are increasing and bonds will be decreasing. However, if the economy is not strong enough to support higher rates, the yield curve could invert. This is when investors have little confidence in the economy and short term rates are higher than long term rates, often leading to a recession.
So what is an investor to do, especially if they are retired or getting close? Take a more comprehensive approach by putting a retirement master plan in place and sticking to it. This will help to smooth out the stock market volatility.
It is important to understand how to prepare yourself for the different phases of life as you move from an accumulation investor to the preservation and distribution phase and how to invest your hard-earned money to get the best returns with the least risk possible. This is what we help our clients achieve every day.
Feel free to contact me with any comments or questions.