What’s Up with the Stock Market?
What the heck man, where are the gains? So we’ve had our big 13% correction this year. Earnings have been great, growing by almost 25% over the same period last year and the economy is pumping…..why is the stock market barely noticing? Retirement investors are clamoring for the answer.
Stocks generally move in the direction of corporate earnings, and this last quarter was gangbusters. David Aurelio, a senior research analyst for Thomson Reuters, says nearly 80% of the companies in the Standard & Poor’s 500-stock index that have reported so far have outstripped the expectations of Wall Street — 16 percentage points higher than the average number of companies that beat expectations. “That performance is the best since our records started in 1994,” he said.
This is the highest level since FactSet started tracking the statistic in 2008. Moreover, earnings growth is approximately 24.9%, the best since the Q3 2010, as 10 out of 11 sectors in the index are generating higher growth rates than what was projected.
The question remains, what’s up with the stock market? Is it that earnings have been so good that it is believed that this performance cannot continue? Or are rising interest rates competing with stocks? Of course, what are good times if not accompanied by the Eeyore’s of the world calling for the end of the party simply “because.”
I certainly understand caution being warranted. So far this year is turning out to have been the best for corporate America in decades. The new tax cuts have transformed great earnings into exceptional ones.
I think the biggest impediment right now is the fear of a recession primarily from what interest rates are doing. If short term rates continue to rise while long rates do not, you get what’s called an inverted yield curve. When the yield curve flattens or inverts, as it did most recently in 2006-7, it is a warning sign that a recession may be looming. This inversion is caused by a rapid decrease in lending by banks, the life blood of economic expansion. The banking industry is primarily about borrowing money at low short-term rates, and lending it at higher long-term rates. When this is less profitable it could lead to a lending slowdown.
It is my belief that we are simply consolidating the gains of last year and that the economy is in fine shape. Earnings look strong well into the future, as FactSet projects quarterly growth of 18.8%, 20.9% and 16.5% for the next 3 quarters, with full-year profit gains coming in at 19.2% on 7.2% revenue growth. Very impressive.
However, if you are a retirement investor, you need more certainty. So do not take any undue risks. You simply cannot replace this money!
The old saying that “it’s better to be lucky than good” definitely does not apply to retirement planning or investing. Being smart is how you win the retirement game.
Put in the time to do the proper planning, invest appropriately so you are getting the best return with the least risk possible and have an asset protection plan firmly in place, not if but when the market decides to crash again.
It all starts with a Retirement Income and Tax-Strategy analysis, something we do for free for our clients. If you would like your free customized analysis, simply give us a call today.
Invest for need, not for greed™
Cheers -Keith Springer