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Yellen in the Hizzy!!!!!

Yellen economy and financial impact

Short week, short blog.  BUT, last week was noteworthy since most equity indices were up over 2.25% and some were up even more (see chart inside for more details of last week’s markets).  Still feeling blue about the equity markets?  Well, this should cheer you up… did you know that the S&P 500 is up a little over 5.5% off of its bottom on February 3rd?  Did you know that the S&P 500 is almost flat for the year after last week?  So what gives?  Well it’s more than just some Yellen in the Hizzy. (That’s a mash-up of some pop culture and Gen Y speak for those Baby Boomers out there.)  Don’t be scared – mash the hyperlink and read on.

I sense a lot of people, even after I pointed out some stats on sell-offs in last week’s blog, are still down on equities.

But BOOM – just like that, people who were getting scared suddenly saw the S&P 500 rebound and make up all but a fraction of the losses we saw up until February 3rd.    In fact, if you look at the NASDAQ, you’ll see that index is at bull market high. (Not an all-time high – we’d have to see an index level a little north of 4500 for a new all-time high).

Weekly Market Returns 2 17 14 resized 600

Weekly Sector Returns 2 17 14 resized 600

Was it all Yellen? Well, to be fair, there was some excitement last week about her positive statements, that’s for sure.  But I think it has more to do with fourth quarter earnings and it didn’t hurt that emerging market gloom has ebbed some.

So Earnings… 

As of last week, we have seen earnings reports from about 1400 companies and the whole season will come to an end this week.  We like to watch how well both the top line revenue and the bottom line earnings are doing. This quarter, things look pretty good for reported revenue.  See, revenue is important because it is sales.  Earnings are what are left over after the company factors in all of its expenses.  So a company can increase earnings without increasing revenue by cutting expenses, like employees.

But that can only last so long.  So we want to see revenue increase because that means more people are buying the company’s goods or services. As of now, here’s where we stand, thanks to Bespoke Investment Group for their in-depth data and reliable coverage of each earnings season.


The percentage of companies beating their revenue estimate for the fourth quarter of 2013 currently sits at 64.1%. This number is WELL ABOVE the average of 60% we’ve seen since 2001 and well above the 53.2% that finished up the third quarter of 2013.  Of course, the earnings reports are not all through yet, but if they hold, we are on track to have the best “beat rate” since early 2010.


The percentage of companies beating their earnings estimates stands at 62.9%, which is higher than the 58.6% final reading from the third quarter.  With the exception of setbacks in the first and third quarters of 2013, we have seen a nice, steady quarter-over-quarter increase in earnings since the second quarter of 2012.  If all holds up this week, the fourth quarter should finish up nicely relative to the third quarter of 2013.

If these numbers hold and the revenue beat rate is higher than the earnings beat rate, that sure will be something to note. I can’t even remember back to the last time we saw revenue beat rates outpace earnings.

Bespoke Investment Group also publishes a chart that shows the spread between companies guiding future earnings higher or lower on a percentage basis.  Up to this quarter, the spread has been negative for the NINE previous quarters, meaning that there are more companies stating they will earn less in the upcoming quarter than the same quarter a year prior.

As of Friday, the spread between companies posting negative guidance vs. companies posting positive guidance stands at -3.7%. That means, depending on this week, it is possible we could see companies warning that they will earn LESS next quarter than they did in the previous quarter ten straight times in a row.


The last time this number was positive was the second quarter of 2011 and look how well the market done since the summer of 2011.

Finally, read this with your best Dos Equis commercial voice…I don’t normally get three day weekends, but when I do, I watch the ENTIRE season of House of Cards in one sitting.  I suggest it to anyone, it’s captivating TV even if you can’t stand fake southern accents.

Please call or email with questions.

Investment advice offered through Monument Advisory Group, LLC a Registered Investment Advisor (RIA).

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries, and widely held by individuals and institutional investors. The Standard & Poor’s 500 Stock Index (S&P 500) is an unmanaged capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. The Russell 2000 Small Stock Index is an unmanaged index generally representative of the 2000 smallest companies in the Russell 3000 Index. The Russell 2000 is an unmanaged index generally comprised of companies with lower price-to-book ratios and lower forecasted growth values.  The 2, 10 and 30 year Treasury is simply the yield at the close of the day.

(1)      West Texas Intermediate crude spot price is as of end of week.

(2)      London Bullion Market Association; gold fixing pricing at 3 p.m. London time.

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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....

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