Here we are: 174 days until the new year and at the beginning of the third quarter. So far, it’s been a pretty predictable summer with dwindling volume, as we head into the heart and heat of the season. Expect to see volatility increase this quarter, as most trading in this light-volume environment will be done mainly by ETF and HFT guys.
Another earnings season is beginning just as we finished the last one. Similar to last summer, energy prices are falling and there’s talk of a disastrous fall season. Some economists are comparing the present to the fall of 1929 and the road to the Depression. Sure, anything could happen in the next three months. The Yellowstone Caldera could erupt, wiping out most of North America, or an asteroid could hit Earth.
But let’s get real and take a look at the facts.
As we head into earnings season, it should be noted that the S&P 400, 500 and 600 forward earnings all rose last week to record highs. While Congress still fiddles with tax cuts, consensus now shows that before any tax cuts are implemented, bringing cash back into the country from overseas companies will raise the earnings growth rate for 2017 and 2018—large caps to 11.4% and 11.8%, respectively; mid caps to 11.4% and 13.7%; and small caps to 9.8% and 19.%
We will start to hear a lot of chatter about Federal Reserve rate hikes this summer. If you take a look back to December 2015 when the Fed began raising rates, you will notice the S&P now stands 17% higher. For most Americans, it’s all about jobs—and rightly so. June’s nonfarm payrolls came in at 222K vs consensus of 179K. May was revised higher to 152K from 138K, and April was similarly revised up to 207K from 174K.
Average hourly earnings rose 4 cents to $26.25, up 2.5% year-over-year. If you look back to the beginning of last year, it was the worst start to the Dow in decades. The index was down 11% at the January 2016 low. Well, how did that turn out? The Dow is now nearly 6,000 points higher, while GDP and ISM manufacturing numbers are both near record highs.
So remember, as you wait for that bright light in the sky or ash to fill the sky, when it comes to your finances, think logically and not with your emotions.
“Hey, what was that light?”