It is time to get excited, optimistic and bullish. Last week put the final nails in the “Oh, woe is me” recession coffin. RIP.
Last week’s good news supported and confirmed recent anti-negative and pro-positive improvements. Here is the wonderful list:
Earnings reports are driving a shift to the positive
Compare these two headlines from The Wall Street Journal:
- October 9: “U.S. Earnings Flash a Worrying Signal”
- November 2: “Earnings Tide Lifts Most Stocks – Investors are getting a more positive picture of American corporations’ health than that painted by analysts in buildup to earnings season”
The cause? Earnings reports continue to be positive on balance, with most of the September quarter-end earnings reports now in. The 336 S&P 500 companies reporting September results so far (from October 15 through November 1) represent 67% of the 500 companies and 75% of the $27T market capitalization. (Many of the remaining 164 companies will report October or November quarter-end results later.)
While reports of companies beating expectations are widespread, a good way to view investors’ complete evaluation is by examining stock performance. Below is a graph of the one-month returns (including dividend income) for all of the 336 reporting companies. I have broken out the so-called “safe” stocks (REITs and utilities) because they have been beneficiaries of both reduced interest rates and bearish thinking – therefore, expect them to underperform.
Clearly, Wall Street views this earnings report season as favorable. Additionally, the need and desire for “safe” stocks has given way to the pursuit of growth.
The Federal Reserve cuts and quits
Finally! While rates remain abnormally low (meaning there is music to be faced in the future), at least the game of will-they-or-won’t-they looks over for now. That is helpful because businesses, consumers and investors now can make decisions based on a stable rate environment.
GDP growth is just fine
A good example of how negativity can take time to turn positive is the last week’s third quarter GDP growth report. Expectations had been for a seasonally adjusted, real (adjusted for inflation), annualized rate of 1.6%, down from 2% last quarter. Instead, it came in at 1.9%. That is good news, but most reports focused on the “continued slowing” instead of the desirable surprise.
Think of that report this way. For a quarter that had its problems, growth was still around 2%, in line with the average post-recession growth rate. Looking at a longer time period provides a good perspective for that 1.9% growth rate.
Employment and consumer spending are good
The recession pundits keep expecting these shoes to drop, but they do not. The problem is the factors leading up to reduced employment are absent. Following, so long as consumers are employed, they will spend. Therefore, in spite of that previous sharp drop in consumer confidence, consumer spending has remained strong and consumer confidence has improved.
The Wall Street Journal’s November 2 lead story (print edition) says it best: “Jobs, Consumers Buoy Economy, Defying Slowdown Across Globe.”
The bottom line
Last week offered an outstanding combination of good news that removes recession pessimism and reintroduces growth optimism for 2020. Stock ownership (excluding “safe” stocks) continues to look desirable.
During my 30-year career, I managed and consulted to multi-billion dollar funds. Using the “multi-manager” approach, I worked with leading investment managers. I now manage personal accounts and write about my analysis and decisions. … From my 50-year personal/professional investment experience, I developed the skills I use to find opportunities and avoid risks. Because markets are ever changing, I choose the strategies (safety, income, value and growth) that conditions warrant. … My one regular activity is to seek developments and trends being ignored or misinterpreted by investors. These are the situations that consistently produce higher return opportunities (or higher risk levels). … I am a CFA charterholder with an MBA from Stanford Graduate School of Business and a BS in Finance from San Diego State University. I am a former Washington DC CFA board member and currently serve on the AAUW Investment Advisers Committee and the City of Vista Investment Advisory Committee. … For more, please see my LinkedIn bio at http://www.linkedin.com/in/johntobeycfa