You Don’t Fight a Junkyard Dog with ASPCA Rules
This is a line from the 1998 movie, The Siege, where a U.S. Senator is contemplating the use of the U.S. Army to track down terrorists in NYC. It’s far from the best line in the movie, especially given the recent events in Boston. More fitting was the quote from General William Devereaux played by Bruce Willis, “This is the land of opportunity, gentlemen. The opportunity to turn yourselves in.”
That eventually happened and someone is getting a new boat from his insurance company just in time for fishing season. The television coverage last Friday night had me riveted to the TV. I wondered what it would have been like to have my home searched by a frightened yet professional SWAT team. I got my answer when I saw the best coverage of the night – Bostonians lining the streets with a standing ovation for law enforcement. Keeping it classy, Boston. It was the best moment on TV last week.
Ouch. Last week, U.S. stocks suffered their worst drop since June 1, 2012.
For most of 2013, U.S. markets have risen despite weaker economic data, another European bailout, geopolitical threats, high energy prices, and weak global economic and earnings growth. So a lot of investors and TV pundits are speculating that this drop may mark a departure from the laissez-faire attitude towards the data and a sign that market participants may be becoming increasingly sensitive to disappointing news.
Disappointments are coming from companies releasing earnings data as well. Of the 91 Standard and Poor’s 500 (S&P 500) companies that have reported revenues, only 43% have beaten their revenue expectations and only 58% have beaten their estimate earnings projections.
Here’s a recap of how the market did last week.
Earnings Season
Bespoke Investment Group follows corporate earnings very closely. They publish 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 six 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, companies posting negative guidance outnumbered companies posting positive guidance by 2.4 percentage points. That stinks because if that keeps up, it will make 7 quarters in a row…it just seems like companies are unwilling to forecast anything positive.
On a positive note, the fear of overstating things on the corporate front may actually be one of the things holding the bull market back a little bit. The fact of the matter remains that companies have actually ended up posting solid numbers over the past six quarters where they were guiding lower expectations.
This week will be another very busy week on the earnings front with several more big names announcing.
Our opinion remains that investors who are fully invested remain that way and investors with cash positions tactically invest portions of that cash position on any market pullbacks.
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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.
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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