Did You Panic Sell at the Bottom?
This ALWAYS happens.
People without a plan catch a whiff of some new cycle whipped up fear and decide that “this is it – my gut (or a friend “in the know”) is telling me that it’s time to get out.” Sure we had a pullback as the S&P 500 saw a peak to trough move of roughly 7%, but these things happen (as I wrote about last week). However, last week the U.S. stock indexes surged, snapping a four-week string of losses as third-quarter earnings reports were largely better than expected. The S&P 500 jumped more than 4% to record its biggest weekly gain since January 2013.
What’s behind the move last week?
I saw five things last week that I think contributed to the move:
First: pretty good third quarter earnings. There were a decent number of companies beating earnings. Not bad. I didn’t see a bunch of revenue or earnings warnings last week, either.
We follow Bespoke Investment Group for earnings research. So far, about 600 companies have reported their earnings and revenue for the third quarter (3Q) of 2014. Here’s where we stand:
The percentage of companies beating their revenue estimatesfor the 3Q currently sits at 58.4%. This number is currently below the average of 60% we’ve seen since 2001 and also below the 60.7% that finished up the 2Q of 2014. Of course, the earnings reports are not close to being complete and it is above the 56% final reading we saw in the 1Q. Since the revenue readings bottomed out in the 4Q of 2011, quarter-over-quarter readings ping pong but the trend has been steady UP for revenues.
“But I thought you said 3Q earnings were pretty good so far?”
AHHH! Well, the percentage of companies beating their earnings estimates stands at 66%! This is WELL above the 58.6% final reading from the 2Q of 2014 and SUPER DUPER WELL above the 56.7% reading from the 1Q. Small-cap stocks have not really started reporting in earnest so this may come down some, but for right now, 66% is super-duper.
…and in fancy finance language, super-duper is better than super. Just so you have a reference.
Second: The Fed may wait longer to hike the Fed Funds Rate. No one is expecting rates to go up rapidly or unexpectedly, but a delay in the first rate hike to later in 2015 is good for stocks.
Third: The weirdness of oil and its recent stabilization. While cheaper oil helps out the consumer and lots of producers, it’s is also somewhat of a proxy on global sentiment. Declining prices in this commodity signal that the world thinks there is a slowdown. Continued declines means the world thinks there is more slowdown to come. So stabilization is good from that perspective.
Fourth: Ebola fears seem to have subsided. A doctor tested positive for the virus on Thursday with the news hitting by evening. It turns out he lives in NYC, spent some time prior to being diagnosed walking the High Line, taking an Uber, going running and going bowling….
The DJIA was up 128 points the next day.
Fifth: We are heading into a traditionally strong part of the year for equities on the heels of a 7% sell-off.
Please call us with any questions.
Important Disclosure Information
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Monument Wealth Management), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Monument Wealth Management. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Monument Wealth Management is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Monument Wealth Management’s current written disclosure statement discussing our advisory services and fees is available for review upon request.
David B. Armstrong, CFA
President & Co-Founder
Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Monument Capital Management, LLC [“Monument”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Monument. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. No amount of prior experience or success should be construed that a certain level of results or satisfaction will be achieved if Monument is engaged, or continues to be engaged, to provide investment advisory services. Monument is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice.
A copy of Monument’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.monumentwealthmanagement.com/disclosures. Please Note: Monument does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Monument’s website or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your Monument account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your Monument accounts; and, (3) a description of each comparative benchmark/index is available upon request.
Please Remember: If you are a Monument client, please contact Monument, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.