The Long Term Investor

The.....negative....markets today.

Stock market news today: Nasdaq, S&P 500 sink with earnings in driver's seat

https://finance.yahoo.com/news/stoc...-with-earnings-in-drivers-seat-125812640.html

(BOLD is my opinion OR what I consider important content)

"Stocks opened lower as investors continue to digest the impact of disappointing Big Tech earnings reports, coupled with rising bond yields.

The tech-heavy Nasdaq (^IXIC) and S&P 500 (^GSPC) dropped about 0.5% and 0.4%, respectively, while the Dow Jones Industrial Average (^DJI) hugged the flatline.

Tech stocks remain under pressure after booking their worst single-day performance in eight months on Wednesday.

Earnings are in the drivers seat for stocks, as investors punish megacaps whose third-quarter reports turned out more downbeat than hoped.

While Meta's (META) earnings beat on the top and bottom lines, its shares reversed initial gains after the Facebook parent warned geopolitical unrest could drag on its ad business. The flow of earnings resumes Thursday, with Amazon (AMZN), Intel (INTC), Ford (F) and Chipotle (CMG) the highlights on the docket.

Concerns are growing that valuations are too high in a world of surging Treasury yields.

On Thursday, the benchmark 10-year yield (^TNX) fell a modest 3 basis points to trade near 4.92% after the latest GDP reading came in hot, with the US economy growing at its fastest pace in nearly two years.

The Bureau of Economic Analysis's advance estimate of third quarter US gross domestic product (GDP) showed the economy grew at an annualized pace of 4.9%during the period, faster than consensus forecasts.

The strong data comes despite the Federal Reserve's higher for longer interest rate mantra, which has failed to constrain the American consumer. The Fed's next interest rate decision is scheduled for Nov. 1

Other central banks are beginning to shift their monetary policy. On Thursday, the European Central Bank held interest rates steady for the first time in over a year following ten consecutive rate increases.

The ECB said it would hold its deposit rate at a record high 4%. The bank maintained its previous guidance of steady policy moving forward."

MY COMMENT

BUMMER for the FED today....out there in the real world.....people dont care what the FED is doing or why. No one even pays any attention to them. Among real people......"higher for longer"....means nothing.

As to tech and other earnings......yes these are nice earnings BEATS. BUT.....the markets obsession with nit-picking is disrespecting them. BUT.....sooner or later it all adds up to real money.....so IGNORE the BS and simply plod forward as is the norm for long term investors.

 

WELL....looks like another one of the little fear mongering topics is now basically gone. The fact that Ford has now established a model contract for the auto industry means that the strike is done.

Ford, UAW reach a ‘balanced’ tentative deal after 6-week strike

https://finance.yahoo.com/news/ford...ative-deal-after-6-week-strike-123919628.html

As usual the fear mongering topics disappear one after another....to be replaced by new ones. It is a never ending cycle.

We will also be able to check off the FED meeting fear mongering in a few days. But that is a constant market distraction. I have no idea why....it is obvious that the FED is either done or within about one rate hike some time in the future of being done.

Surprisingly all the experts simply gave up on trying to fear monger earnings this time around......they simply refused to talk about them. Now the norm is to nit-pick good earnings beats to death.

 

COURAGE...ENDURE.

The mantra of the long term investor.

 

Here is AMAZON:

Amazon reports better-than-expected results, as revenue jumps 13%

https://www.cnbc.com/2023/10/26/amazon-amzn-q3-earnings-report-2023.html

(BOLD is my opinion OR what I consider important content)

"Key Points

• Amazon blew past analyst expectations for revenue and earnings in the third quarter.
• Revenue climbed 13% in the quarter, a sign that the business is seeing some acceleration after a difficult 2022 that was marred by soaring inflation and rising interest rates.
• The mid-point of Amazon’s fourth-quarter forecast was below analysts’ estimates.

Amazon reported third-quarter earnings and revenue on Thursday that sailed past analysts’ estimates. The stock initially popped in extended trading, but then gave up most of its gains.

Here are the results:

• Earnings per share: 94 cents per share vs. 58 cents per share expected by LSEG, formerly known as Refinitiv.
• Revenue: $143.1 billion vs. $141.4 billion expected by LSEG.

Investors are also following these segment numbers:

• Amazon Web Services: $23.1 billion vs. $23.2 billion in expected revenue, according to StreetAccount
• Advertising: $12.1 billion vs. $11.6 billion in expected revenue, according to StreetAccount

Amazon said fourth-quarter sales, which include the key holiday period, will be between $160 billion and $167 billion. Analysts were expecting revenue of $166.6 billion, according to LSEG. At the mid-point of its guidance range, revenue of $163.5 billion would represent growth of 9.6% from $149.2 billion a year earlier.

Revenue climbed 13% in the third quarter, a sign that the business is seeing some acceleration after a difficult 2022 that was marred by soaring inflation and rising interest rates.

Amazon has been in cost-cutting mode for the past year as it became clear that it expanded too quickly during the pandemic. The company has laid off 27,000 employees since last fall, and it’s axed some of its more unprofitable bets.

CEO Andy Jassy, who succeeded founder Jeff Bezos at the helm in mid-2021, said those belt-tightening efforts continue to bear fruit.

“We had a strong third quarter as our cost to serve and speed of delivery in our Stores business took another step forward, our AWS growth continued to stabilize, our Advertising revenue grew robustly, and overall operating income and free cash flow rose significantly,” Jassy said in a statement.

Sales in Amazon’s core e-commerce business continued to recover, expanding 7% year over year, after growing 4% in the previous quarter. The September quarter includes the results of this year’s Prime Day promotion, which took place in July. Amazon described it as its “biggest ever” sale.

Net income more than tripled to $9.9 billion, or 94 cents a share, from $2.9 billion, or 28 cents a share, a year earlier. Net income for the quarter includes pre-tax valuation gain of $1.2 billion from the company’s investment in electric car company Rivian.

Amazon’s results follow better-than-expected numbers from Alphabet and Meta earlier this week. However, shares of both of those companies fell after their earnings reports. Alphabet investors were concerned about disappointing revenue in the Google Cloud division, while Meta’s selloff resulted from cautionary comments regarding the ad market in light of the escalating conflict in the Middle East.

Amazon shares fell more than 6% over the past two trading days, as the response to Alphabet and Meta’s numbers hit their mega-cap tech peers.

Digital advertising continues to be a bright spot for Amazon, as third-party sellers and large brands bolster their ad spending to improve visibility in an increasingly competitive marketplace. Ad revenue increased 26% from a year earlier. That’s much faster than Google’s ad growth, which was 9%, and topped Facebook’s ad growth of 23%. Snap said revenue rose just 5%.

In cloud, however, Amazon appears to be giving up some market share. Amazon Web Services, which leads Microsoft Azure and Google Cloud, showed growth in the quarter of 12%. Microsoft earlier this week said Azure revenue jumped 29%, and Google Cloud expanded by 22%."

MY COMMENT

A big fat earnings BEAT. But....I can see some little things here and there for the nit-pickers to use to trash the stock tomorrow. It will be interesting to see how it trades in the morning.

 

Some nice big cap tech companies are on sale now.....at least by my thinking.

BUT....as to today.....a perfect day for me....not a single stock up today. And to top it off......a loss to the SP500 today by 1.17%.

Tomorrow with AMZN and next week with AAPL.....will tell us if the markets are simply going to ignore earnings this time around. The way they do that is by finding something to gripe about no matter how good the earnings BEAT.

 

The markets at this moment:

Nasdaq tumbles 1.7% Thursday, descending further into correction territory

https://www.cnbc.com/2023/10/25/stock-market-today-live-updates.html

(BOLD is my opinion OR what I consider important content)

"The Nasdaq Composite dropped deeper into correction territory on Thursday as Meta became the latest tech company to offer a forecast that didn’t quite live up to investors’ expectations.

The tech-heavy index lost 1.76%, closing below its 200-day moving average and ending at 12,595.61. The S&P 500 dipped 1.18% to finish the session at 4,137.23, while the Dow Jones Industrial Average slipped 251.63 points, or 0.76% to 32,784.30. During Thursday’s session, the S&P 500 dipped into correction territory at its low of the day — and it ended the session nearly 10% off from its closing high, notched in July.

Following a 2.4% decline on Wednesday, the Nasdaq Composite is now officially in correction territory, down more than 10% from its high close for the year in July.

“Wall Street hasn’t been impressed with big-tech earnings so far and the remaining ones, Amazon and Apple will likely struggle given the weakening outlook for the US economy,” said Ed Moya, senior market analyst at Oanda. “Strong demand from today’s seven-year auction shows you investors are still concerned with all the geopolitical risks that remain on the table.”

Facebook-parent Meta beat on top and bottom lines in the third quarter, but the company noted that it was seeing some advertising softness so far this quarter. Investors also worried about cost control with the company’s Reality Labs division, which shed $3.7 billion throughout the quarter. Meta shares slid 3.7%.

The moves follow a brutal trading session Wednesday, which was partly driven by a 9.5% decline in Google-parent Alphabet. Alphabet’s Class-A shares suffered their worst day since March 2020 on Wednesday after the company reported revenue in its Google cloud unit that came in below analyst estimates.

The Nasdaq on Wednesday recorded its worst day since Feb. 21. The correction since the summer is being driven by a surge in bond yields with the 10-year Treasury yield at one point this month crossing 5%. The 10-year yield slipped 10 basis points to 4.84% Thursday, but that failed to stem the market sell-off.

The market didn’t get any help from the third-quarter gross domestic product report, which came in much stronger than expected. U.S. GDP grew at a 4.9% annualized clip from July through September, while economists polled by Dow Jones forecast 4.7%.

Major earnings are also on the horizon, with Amazon scheduled to post results after the close."

MY COMMENT

Yes....I would say the NASDAQ is in correction right now. Kind of hard not to be when you lose 2.4% and 1.76% in back to back days.

I am going to also call the SP500 as being in a correction now.....just to get it over with.

Obviously the fact that some of the averages are in a correction is NORMAL. In any 12-16 month time span it is not unusual to see at least one correction. People with money on hand and a long term focus are....no doubt....finding some good buys out there right now.

 

A little anecdotal real property update for my area of the world.

I have not done a real estate update for a while for my little area of 4200 homes. Prices have been stable and actually going up some in my area. Of course....inventory is extremely limited.....due to the economic conditions, the fact that owners do not want to sell homes with low interest mortgages and the fact that we are one of the most desirable neighborhoods in Austin and the Austin region.

Prices currently range from a low of $645,000 to a high of $8MILLION.

At this moment there are only......33.....active listings. There are zero homes in my little area of about 85 homes for sale. We had a couple of homes for sale....but they sold and closed.

All in all I am pleased to see our prices holding up. It is nice to have a free and clear home in a desirable neighborhood......as part of our net worth.

 

Earnings rolling in.......here is some "expectations" information.

What Returns Should You Expect in the Stock Market?

https://awealthofcommonsense.com/2023/10/what-returns-should-you-expect-in-the-stock-market/

(BOLD is my opinion OR what I consider important content)

"A reader asks:

What REAL rate of return is best to use for retirement forecasting? I always read that equities return ~10% on average, but am curious what real return is best to use to factor inflation into retirement planning.

One of the most important aspects of any successful investment plan is setting reasonable expectations up-front. The hard part about this equation is most of those expectations are guesses and they are likely to be wrong.

The obvious reason is that the future is both unknowable and unpredictable.

When it comes to the stock market the best you can do is analyze the past, think about the present and make educated guesses about the future.

I like how this reader is asking for real returns because those are the only ones that matter over the long haul. Luckily, the stock market has historically been a wonderful hedge against inflation.

Here are some updated long-term inflation-adjusted returns for stocks, bonds, cash, gold and the dollar going back more than 200 years from Stocks For the Long Run by Jeremy Siegel and Jeremy Schwartz:


Stocks are the big winner over the long run (hence the name of the book).1

The dollar’s purchasing power has been decimated but that’s because of inflation. You shouldn’t earn a return on your money for simply burying it in your backyard. You have to take risk to earn a reward.

Aswath Damodaran has annual data for stocks, bonds and cash going back to 1928. Here are the real returns for those three asset classes over that time frame:


That’s pretty close for stocks but slightly lower for bonds and cash.

The interesting thing about real stock market returns over the long run is how relatively stable they have been regardless of the economic environment.

The big question is this: Can we use the historical return for stocks to set expectations for the future?

The honest answer is we don’t know for sure. No one can tell you what the future holds.

I am fairly confident the stock market will continue to beat bonds and cash over the long run but no one can be sure what that premium will be. That’s simply a function of risk.

A lot of people assume the fact that valuations have been rising over time should mean lower returns going forward. Just look at the upward swing in the CAPE ratio over time:


My thinking here is there is a case to be made that stock market returns can and should be lower going forward but it’s not really based on valuations per se. Instead, it’s based on the idea that accessing the stock market was much harder in the past.

There were much higher barriers to entry.

Costs were higher and the financial system was more unstable. Thus, investors rightly demanded higher returns on a gross basis. But net returns in the past were likely much lower since trading costs, fees and expense ratios were so much higher.

Even if gross returns are lower going forward, it’s much easier to earn market returns on a net basis through index funds, ETFs and zero-commission trading. Plus, there were no tax-deferred retirement accounts before 1980 or so.

The best case for lower returns going forward is probably the United States. Our stock market has been the clear winner over the past 120+ years relative to the rest of the world:


I wouldn’t bet against the United States of America but we can’t expect a repeat performance either.

I guess what I’m trying to say here is you’re best bet is probably to use a range of real returns to set expectations for the future of your portfolio. I would say somewhere in the range of 5-6% real is reasonable based on current valuation levels:


The earnings yield is the inverse of the P/E ratio, which currently stands at around 5.2%.2

If things are better than expected you can adjust your plan accordingly.

If things are worse than expected you can adjust your plan accordingly.

Life would be a lot easier if risk assets offered us future returns that are set in stone. But then they wouldn’t be risk assets and certainly wouldn’t offer a premium over other asset classes or the inflation rate.

One of the biggest reasons stocks offer this premium is we simply don’t know exactly what their future returns will be."

MY COMMENT

Of course the above is NOT.....total return.....which includes dividends.

I prefer to be conservative and set a personal goal of 10% total return for the long term.

 

Where are the.....NIT-PICKERS?

Amazon beats earning estimates, touts AI as the future

https://finance.yahoo.com/news/amazon-beats-earning-estimates-touts-ai-as-the-future-134528663.html

As to the cloud:

"In Q3, the division fell slightly short of analysts' net sales expectations, coming in at $23.06 billion, against the $23.13 billion Wall Street expected."

The reaction to AMZN earnings and the other tech earnings this week......show the erratic stupidity of the short term.

 

The meaningless economic story of the day.

Fed's preferred inflation gauge shows further signs of price increases cooling

https://finance.yahoo.com/news/feds...gns-of-price-increases-cooling-135443531.html

(BOLD is my opinion OR what I consider important content)

"The Federal Reserve's preferred inflation metric showed prices continued to cool in September — a critical data point the Federal Reserve will consider as it weighs its next interest rate decision on Nov. 1.

The Personal Consumption Expenditures (PCE) Index grew 3.4% year over year in September, in line with August's revised increase and meeting analyst expectations, data released by the Commerce Department on Thursday showed.

"Core" PCE, which excludes the volatile food and energy categories, grew 3.7%, down from a revised 3.8% in August and in line with what economists surveyed by Bloomberg had expected. Core PCE is the inflation measurement preferred by the Fed, as PCE — unlike the more widely-cited Consumer Price Index (CPI) — feeds directly into GDP.

The core PCE figure "reflects the stickiness of core services inflation, which is still too strong to be consistent with inflation falling back to the Fed's 2% target," Oxford Economics lead economist Michael Pearce wrote in reaction to the data.

Month-over-month, core PCE rose 0.3% in September, an uptick from the 0.1% rise seen in August, which was the lowest rate since November 2020.

Personal spending increased 0.7%, outweighing personal income, which rose 0.3%.

"Disposable income growth has come under pressure as wage and job growth slows," Pearce said. "The weakness also reflects a slight fiscal tightening as transfer payments decline and as tax payments increase."

"With incomes falling, higher spending is being funded by lower saving, with the personal saving rate declining to 3.4% in September, its lowest since December 2022," the economist continued.

"While we estimate there is still a considerable stock of excess saving left over from the pandemic, that is now mostly concentrated among higher income households and appears to be increasingly treated as wealth, so we expect the boost to spending from lower saving to wane from here. We also expect some increase in precautionary saving as the job market slows."

The price of goods edged up 0.9% in September from a year ago, higher than August's 0.7% rise. Durable goods fell another 2.3% after falling 1.9% in August while non-durable goods ticked up 2.7%.

Services saw prices rise 4.7% — below August's 4.9% increase. Food prices also came in lower compared to the prior month, with September's reading showing a 2.7% yearly rise compared to a 3.1% jump in August.

Energy goods and services were flat in September after falling 3.6% in August.

Government data released on Thursday showed the US economy grew at its fastest pace in nearly two years during the past three months as consumers stepped up their spending despite a high interest rate environment.

The hot GDP print comes as inflation has remained significantly above the Federal Reserve's 2% target. A labor market that, while softening in certain areas, is still tight, suggests the Federal Reserve could continue to raise interest rates. The Federal Reserve’s latest meeting minutes showed policymakers support a more restrictive rate environment.

Cleveland Fed President Loretta Mester said last week she still sees the possibility of one more rate hike this year.

But markets still expect the central bank to pause its hikes at its meeting later this month. Following the release of the data, markets were pricing in a roughly 99% chance the Federal Reserve keeps rates unchanged at its upcoming policy meeting, according to data from the CME Group."

MY COMMENT

A rare article today. Most are blatantly negative on this issue.

 

WELL....at least today we are seeing some green in the NASADAQ and the SP500. The markets got way ahead of themselves to the negative side over the past three days.

This short term action is simply the price you pay to be fully invested for the long term. I imagine there are some that have been shaken out of the markets over the past few weeks as the negativity become too painful.

You just have to be....TOUGH....to be a long term investor and sit though all the short term market events and commentary. the pay-off cmes when you capture the big explosive days that seem to come out of nowhere. If you want to capture the market average return of about 10% per year....you have to be in the markets. Market timing is not going to cut it.

 

I have been looking for general information of earnings and where we are with the percentage of beats. I am finding nothing. It is nearly impossible to find anything. The earnings news blackout continues.

I consider that a good sign. If things were not going nicely....the headlines would be screaming.

 

OK....I have a really good gain going on so far today. Two of eight stocks down.....COST and HD.

We are still on our way to a pretty nasty loss in the SP500 this week. I dont see it as justified.....but reality is....what it is.

 

I agree....earnings have been VERY GOOD. Last I saw we were in the mid 70's on beats. Now...being at about 80%.....we are doing really well for only being about half way done. AMAZING strength with the companies that make up the American economy.

 

Lucky there is only two minutes to go in the day and the week......we have lost most of our gains as we head to the close. It is going to be one of those days when how you do it totally dependent on the very specific companies that you happen to own.