The Long Term Investor

I like this simple little article.

A.R.E.A.M.

https://www.riskhedge.com/outplacement/a.r.e.a.m1/rcm

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

"My grand-dad used to tell me, “Look after the pennies, and the pounds will look after themselves.”

Microsoft (MSFT) founder Bill Gates still flew Economy long after he was a multimillionaire.

And to this day, the table in Amazon’s (AMZN) executive conference room is made of old doors with 4x4s attached to them for legs.

Smart frugality is a common trait among the world’s most successful businesses.

Microsoft and Amazon are penny pinchers, but investors in their stocks enjoyed extravagant gains.

Now let’s get after it!

1. We’re entering the best time to buy stocks, BUT…

The weakness we’ve seen over the past few months is perfectly normal… and expected.

Remember, we’re slap-bang in the middle of the third year of a presidential cycle.

You should expect stocks to fall right now. Because that’s what they’ve done around this time of year, on average, in pre-election years going back seven decades.

This great chart from Carson Group shows the S&P 500 is following the “third year” script to a tee:

Source: Carson Group

Next up: The best three-month period for stocks—November through January—begins next week.

All that said… some caution is warranted right now.

The S&P 500 slipped below its 200-day moving average for the first time since March 2023. It could be nothing, and it probably is nothing. But it absolutely means the risk of a big, short-term drop is heightened.

What to do? If you follow our strategy of buying great businesses cashing in on disruptive megatrends, nothing. Stay the course and buy more if shares go on sale.

But if you’re holding any shaky stocks… or you’re a little overexposed to the stock market… now’s the time to tighten things up. Just in case.

1. My #1 takeaway from big tech earnings… A.R.E.A.M.

The market’s reaction to Microsoft and Google’s (GOOG) earnings was telling.

Microsoft: +3%... Google: -10%!

Both companies put up good numbers. But what mattered was Google fumbled the ball on AI again, pushing the stock down for its fourth worst day ever!

My big takeaway is A.R.E.A.M.

AI… Rules… Everything… Around… Me (Wu-Tang Clan fans will get the reference.)

Investors are grading tech stocks on one thing and one thing only: AI-fueled growth. And companies that fail to deliver (like Google) get punished.

Star pupil Microsoft knocked it out of the park with AI-related cloud sales.

A Grand Canyon-sized gap between the “AI rich” and the “AI poor” is already developing.

I expect it to be the dividing line that determines if you win or lose as an investor.

1. Maybe the worst AI prediction I’ve ever heard…

Folks think big tech companies will dominate AI and capture all the gains for themselves.

Take this recent CNBC piece from AOL co-founder Steve Case:

Source: CNBC

There’s going to be a historic tech shift and only the incumbents will win?

That’s just lazy thinking. It’s also dead wrong.

AI is the great equalizer for startups competing with big tech.

Not only will the Silicon Valley giants not dominate artificial intelligence. AI will allow dozen-person teams to compete with 100,000-man strong companies like Google for the first time ever.

AI turbocharges productivity unlike anything we’ve ever seen. It allows you to do the same amount of work in half the time.

Startups are already leveraging “AI interns” to compete with the big boys.

ChatGPT creator OpenAI has just 375 employees. Its AI tools wipe the floor with Google, which employs 190,000 people!

Startup Character.AI lets you create your own personalized chatbot. With just 22 employees, it gets over 100 million visitors a month to its website. And oh yeah, it’s less than a year old and is valued at $5 billion.

Nimble startups using AI will come out of nowhere and challenge the big tech giants. That’s something we haven’t seen before.

Don’t believe the lie that big tech will dominate AI. Every new tech innovation creates a new set of winners."

MY COMMENT

The recent problem for GOOGLE.....is a messaging failure. They dont seem to know how to communicate about AI.

I am sure they are rushing AI into their products......they just dont say it properly.

 

So true.

Much Ado About Treasury Volatility

https://www.fisherinvestments.com/e...commentary/much-ado-about-treasury-volatility

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

"What headline interest in Treasury minutiae says about sentiment.

Spiking bond yields have been center-stage in the equity-market correction (sharp, sentiment-driven -10% to -20% pullback), as 10-year Treasury yields pierced prior year-to-date highs and surged further. Between July’s end and mid-October’s high, rates soared from just under 4% to brush 5%, fanning fears there was further to go—with many pointing to deficits, slack bond demand and potentially more rate hikes ahead. But in our view, this swing was chiefly about sentiment—and such moves often reverse as fast as they strike. Now it seems we may be seeing signs of just that.

Fundamentally, inflation and inflation expectations heavily influence bonds’ longer-term direction. So you might expect that, with inflation falling from the consumer price index’s (CPI) 9.1% y/y peak in June 2022 to 3.7% in September—with further irregular declines expected—rates would be declining, too.[ii] But typical of forward-looking markets, Treasurys priced in inflation’s slowdown beforehand. As folks gradually appreciated—consciously or no—that inflation was cooling, its surprise power and ability to sway bond markets waned. Five-year “breakeven” inflation expectations peaked at 3.6% in March 2022—that is, markets expected CPI to average 3.6% over the next five years—but they fell to just above 2% by September 2022 and have been mostly pinned there since.[iii] So this fundamental force that would ordinarily pull rates lower faded.

Meanwhile, economists continually pushed out their recession forecasts. Most now have been completely revised away. Sentiment swung hard. Fears pivoted to a “too hot” economy and, more recently, Treasury supply overwhelming demand. Still others argued a rise in the mysterious “term premium”—extra yield to own long-term bonds to compensate for the risk of changing rates over the bond’s life—underpinned the rise.

But since 10-year Treasury yields kissed 5% October 19, rates are now back down to 4.57%—at levels dating back to September and retracing almost half the rise.[iv] What changed? Very little. Some point to last week’s US Treasury announcement it will sell less debt than expected this quarter. Instead of borrowing $852 billion in Q4 like Treasury anticipated in July, it cut estimated borrowing to $776 billion, citing higher tax receipts.[v] It also signaled slightly lower-than-anticipated longer-term Treasury issuance—$112 billion versus $114 billion expected, with 10- and 30-year Treasury debt sales slowing.[vi] And it now projects only one more quarter of stepped-up issuance versus several more that major dealers had penciled in. Reduced borrowing means reduced bond supply. But none of these seem like big shifts to us.

Others suggest the real reason rates rose was the deficit itself, presuming hawkish “bond vigilantes” were the issue. If the deficit explained yields’ recent rise, they shouldn’t have reversed fast—and there should be a clear widening gap between US spreads and those of countries running projected surpluses. Consider Exhibit 1, which plots the difference between US rates and developed world countries forecast to run 2023 budget surpluses. It may appear the widening gap between American and Swiss rates supports the notion deficits are to blame. But it doesn’t hold against any of the other countries predicted to run 2023 budget surpluses—including oil-rich Norway, which has the largest surplus of all as a share of GDP.[vii]

Exhibit 1: US Rates Minus Surplus Countries’




Source: FactSet, as of 11/7/2023. Difference in 10-year sovereign yield, 11/6/2020 – 11/6/2023.

Look at these data differently for a deeper view. Exhibit 2 shows the gap between Swiss rates and everyone else’s. The gap began widening in 2022, when inflation started really heating up in all these countries ... except Switzerland, which saw harmonized CPI peak in August 2022 at 3.3% y/y.[viii]

Exhibit 2: US and Surplus Countries Minus Switzerland




Source: FactSet, as of 11/7/2023. Difference in 10-year sovereign yield, 11/6/2020 – 11/6/2023.

Still others say it isn’t deficits or borrowing plans, but changes in the term premium—reflecting a shift up in expected future rates. The problem here, though, is that it isn’t directly observable. It can only be guesstimated using a variety of academic approaches. There is no way to actually prove or measure what the term premium is—or, crucially, why it may shift. These kinds of constructs, in our view, seem more to us like a fruitless effort to explain volatility after the fact than a causal explanation of where rates are headed.

And that, folks, brings us to the point: Don’t overthink volatility. Even bonds demonstrate it, sometimes significantly. It doesn’t always have a bigger, badder meaning—and it can reverse quite fast."

MY COMMENT

I agree. It was obvious that negative sentiment got way too high.....way too fast. It was not rational.

It was also NOT relevant to long term investors and became a fear mongering topic.

 

The open today.

S&P 500 is little changed, struggles to extend rally for a ninth consecutive day

https://www.cnbc.com/2023/11/08/stock-market-today-live-updates.html

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

"The S&P 500 hovered near the flatline on Thursday as the broad-market index struggled to build on its longest winning streak since November 2021.

The benchmark was little changed, while the Nasdaq Composite added 0.1%. The Dow Jones Industrial Average
traded flat.

“We’re going to get these little pauses along the way, but I think overall, there’s just a good reason to be positive mainly because of the FOMC, and again, just the idea that financial conditions probably won’t get tighter,” said Sylvia Jablonski, CEO at Defiance ETFs.

Disney rose 7% after reporting better-than-expected profit and expanding its cost-cutting plan, while Arm dipped 6% following its first quarterly report as a public company. MGM Resorts dipped 1% even after posting strong results and a new share buyback program.

The moves follow a muted but momentous day on Wall Street. The S&P and tech-heavy Nasdaq finished up about 0.1% each, notching their lengthiest stretch of positive sessions in two years. The Dow finished down by about 0.1%, snapping a seven-day run of gains."

But despite the S&P’s winning streak, the market still has narrow leadership, according to Robert Haworth, senior investment strategist at U.S. Bank Wealth Management. Technology stocks have also continued to outperform as investors assess the interest rate environment, he said.

In other news, initial filings for jobless benefits released Thursday showed a decline of 3,000. Traders are looking ahead to remarks from a slate of Federal Reserve officials — including chair Jerome Powell.

The culmination of third-quarter earnings season continues after the bell with reports from Wynn Resorts, Illumina and Unity Software."

MY COMMENT

A nothing week. No news....is....good news.

 

This is a really good basic article on ARM. I am not looking to buy the stock at this time....but....this is some good basic info. Looks like a nice business. Too bad NVDA was not allowed to acquire this company. They would have been a perfect match.

How Arm is gaining chip dominance with its architecture in Apple, Nvidia, AMD, Amazon, Qualcomm and more

https://www.cnbc.com/2023/11/09/how...ce-with-apple-nvidia-amazon-and-qualcomm.html

 

Speaking of NVDA.

Nvidia Unleashes Barrage Of AI Enhancements, Storms New Buy Point

https://www.investors.com/research/...rage-of-ai-enhancements-storms-new-buy-point/

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

"When it comes to revolutionary innovations in artificial intelligence and generative AI, Nvidia (NVDA) is just getting started. As fellow Magnificent Seven stocks like Microsoft (MSFT), Meta Platforms (META) and Amazon (AMZN) also ride the AI boom, Nvidia stock is generating a new breakout after a 365% surge off its October 2022 lows.

Amazon stock has already fueled a fresh breakout while also unveiling its own AI model code-named Olympus. Of course, Microsoft and Google also have long-established their bona fides as top AI stocks to watch.

Now Nvidia is upping the ante as it unveils steps to turbocharge generative AI training and accelerate the adoption of generative AI in the $1.7 trillion telecom industry.

These and other moves have Nvidia — the IBD Stock Of The Day on Monday — moving past a 476.09 buy point in a double bottom.

Nvidia Stock, Microsoft, Meta Lead The Magnificent Seven

With each earning the highest-possible 99 Composite Rating, Nvidia, Microsoft and Meta lead the tech titans known as the Magnificent Seven stocks.

Nvidia Unveils AI Accelerants

Aiming to further embed and expand AI technologies, Nvidia has announced two new moves in the AI space.

In a blog post Wednesday, the company said its artificial intelligence platform has raised the bar for AI training and high-performance computing in the latest MLPerf industry benchmarks. The company also put particular focus on Nvidia Eos, an AI supercomputer powered by a whopping 10,752 Nvidia H100 Tensor Core graphics processing chips and Nvidia Quantum-2 InfiniBand networking.

Emphasizing the rapidly improving speed of the testing, the company said the Nvidia Eos completed a training benchmark nearly three times faster than the record Nvidia set when the test was introduced less than six months ago.

Earlier in the week, Nvidia and Amdocs also announced they are collaborating to optimize large language models to speed adoption of generative AI applications and services across the $1.7 trillion telecommunications and media industries.

With roughly 30,000 employees around the world, Amdocs (DOX) helps communications and media clients migrate to the cloud and drive the 5G era. Further, the Nvidia-Amdocs collaboration aims to empower communications service providers to efficiently deploy generative AI use cases across their businesses.

Nvidia Stock Charges Toward New Breakout

With earnings due Nov. 21, Nvidia pushed past the 476.09 entry on Thursday. With a huge run already behind it and the buzz around the AI darling shining brigthtly, all eyes will soon be one how Nvidia reports - and how Wall Street reacts.

For now, a new market uptrend and emerging Santa Claus rally both continue to boost Nvidia stock, as well as Microsoft, Amazon, Meta, Alphabet and Apple.

Among the Magnificent Seven stocks, only Tesla (TSLA) and Google stock remain below their 50-day moving averages."

MY COMMENT

The future is HUGE in the tech world with all that is happening right now. Obviously there will be many shake-outs over time....but....the well positioned big cap monsters will bee in the thick of it for decades to come.

 

With all the big averages now in the red.....I STILL have a very good gain going today. It is being driven by NVDA. My green stocks at the moment are....NVDA, HON, AAPL, and MSFT.

I feel good about the markets today....in spite of the current red. Today is a good chance for me to gain a big jump on the SP500 if NVDA holds and perhaps even grows into the close. They seem to be really booming with earnings about 1.5 weeks away. The current rally in the stock along with the earnings could.......easily..... propel the company to new highs.

 

Yeah.....NVDA has lost some of the earlier gains but is hanging in there. It gives me hope for a green close....regardless of the averages.....since irt is a double position in my account.

It is so dumb that the markets allow Powell to jerk them around. He really is totally out of ammunition at this point. He just says the same thing over and over....with a little bit of difference in the language.

The fear mongers always love it.

As a long term investor.....I am way beyond Powell.....to care.

 

Here is some good news.
IRS provides tax inflation adjustments for tax year 2024


https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024

"The standard deduction for married couples filing jointly for tax year 2024 rises to $29,200, an increase of $1,500 from tax year 2023. For single taxpayers and married individuals filing separately, the standard deduction rises to $14,600 for 2024, an increase of $750 from 2023; and for heads of households, the standard deduction will be $21,900 for tax year 2024, an increase of $1,100 from the amount for tax year 2023."

MY COMMENT

The release today also includes the tax brackets and a lot of other tax rates and brackets that are subject to inflation adjustment. It also outlines those that are nos subject to inflation adjustment.

$29,200....is a pretty hefty standard deduction. It is good for us since we have no mortgage interest or much else to itemize. In the past our taxes were complex....but now....very simple.

 

My couple of green stocks.....NVDA and HON.....were not able to save me from going red today. The rest of my stocks closed in the red and pulled me down.

At least....I was able to salvage a beat on the SP500 by 0.41% today.

Thanks.....POWELL....now go away.

 

If this starts to snowball it could mean the end of the 401K.....or at least the matching funds.

Goodbye match, hello retirement benefit account? What IBM 401(k) change means

https://finance.yahoo.com/news/goodbye-match-hello-retirement-benefit-155835154.html

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

"Tech giant IBM will replace its 401(k)-matching program with a different kind of benefit that many employees and financial advisors worry will dampen retirement savings and become the norm.

In a memo to U.S. employees last week, IBM said it’s switching its 5% 401(k) match and 1% automatic contribution to an automatic tax-deferred 5% retirement benefit into a new "Retirement Benefit Account" (RBA) starting Jan. 1.

Each employee who’s served at least a year will receive a “monthly account credit” up to IRS limits and a one-time salary increase, separate from the company’s annual pay plan, to “offset the difference between the current company 401(k) contribution rate” and the new credit.

IBM said it’s guaranteeing a 6% return on that money through 2026. From 2027-2033, it guarantees the 10-year Treasury yield with a 3% floor and in 2034 and beyond, employees will receive whatever the 10-year Treasury yield is. The 10-year Treasury yield is currently hovering around 4.5%.

Not only does the plan look less lucrative for employees, financial advisors fear that if a Fortune 500 company like IBM can pull this off, other companies will follow.

“Probably the most concerning thing is how the risk is getting shifted to employees,” said Phillip Hulme, founder of Atlanta-based Stars & Stripes Financial Advisors and advisor to some IBM employees.

How would the Retirement Benefit Account (RBA) hurt retirement savings?

Reasons financial advisors are skeptical of IBM’s new plan include:

• Disincentive to save. Without the lure of a 401(k) match, or what experts like to call the “free money,” people may not save as much.
  
  
• Employees lose control of the money. They can’t choose how they want to invest that money and lose the flexibility of a 401(k), such as using it for a loan, said Hulme.
  
  
• Lower returns. The average, inflation-adjusted return for the stock market for the past 200 years is between 6.5% to 7%, according to consulting firm McKinsey & Co., compared with IBM’s highest guaranteed return rate of 6%.
  
  
• More taxable income. The one-time raise employees receive as part of the new benefit is taxable income, unlike the tax-deferred 401(k) match, and employees would be responsible for saving and investing that money now.
  
  
• The salary increase is only once. Employees are compensated for lost matches in future years.
  
  
• It’s unclear how the RBA will be funded. Under the Employee Retirement Income Security Act (ERISA), companies must fund 401(k) matches with real dollars. If IBM’s “credit” is just that, with “no cash in there, and it’s just listed on the books, if something bad happens, and IBM couldn't make good on its liabilities,” employees would be on the hook, Hulme said.

Why could this change be important for workers everywhere?

“If IBM can get away with it, maybe others will follow,” said Steve Azoury, adviser and owner of Azoury Financial in Troy, Mich. “IBM helped lead the charge into 401(k)s, basically ending pensions in America.”

Why would IBM switch to an RBA?

Cash management.

“It could be a reaction to increased interest rates,” Hulme said. “If I put myself in IBM’s shoes and carry debt and refinance every year and now, rates have gone from zero to over 5%, then I’m thinking of cash flow management and how to decrease that debt load and carry cash at low rates.”

Basically, the company can improve its cash flow by just crediting accounts, instead of actually funding them using real dollars. Looking like it has improved cash flow, the company looks less risky and may be able to obtain better interest rates on its debt when it comes time to refinance, he said.

Others speculate IBM can use the money as a cheap source of funding for its business or invest it to earn a profit above the promised yield to employees.

Either way, employees should “prepare to get bent,” wrote one poster on Arstechnica’s open forum on the topic.

What does IBM say about the new retirement plan?

The RBA helps its U.S. employees “save for retirement automatically, with no contribution required from the employee,” IBM said. It also “adds a stable and predictable benefit that diversifies a retirement portfolio and provides employees greater flexibility and options. “

The company stressed, too, that employees will still be able to contribute to their 401(k) plan. Only the company’s portion is changing to help “diversify their retirement portfolios.”

How many IBM employees will be affected by the change?

The change only applies to U.S. employees. Worldwide, the company had about 288,000 employees last year but doesn’t break out how many are in the U.S. Some reports have said there are fewer than 100,000 in the U.S."

MY COMMENT

I can see this sweeping the US business world. it will be just like when the big companies all ditched their pension plans for the 401K. This is taking it to the next step of basically screwing employees. I am sure they have calculated this out and will save a ton of money.

This will be very attractive to business if they dont have to actually fund any of this real time....if they only have to show a credit in the account for accounting purposes.

A very smart move by IBM.....for the employees.....BUMMER.

These returns are going to severely under-perform market returns. A big long term hit for employees. Of course....I am sure the executives will be protected.

 

I saw elsewhere that this appears to be simply a "Cash Balance" pension plan.

Fact Sheet: Cash Balance Pension Plans

https://www.dol.gov/agencies/ebsa/a...center/fact-sheets/cash-balance-pension-plans

The link above contains much good info on this sort of plan.

 

Welcome to the club.

Stocks’ Recent Strength Points to a New Bull Market
History is telling us that stocks are poised to soar throughout 2024 and 2025

https://investorplace.com/hypergrow...-recent-strength-points-to-a-new-bull-market/

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

• "The S&P 500 has rallied for eight consecutive days – its longest winning streak in two years.
• There were a handful of eight-day winning streaks in the 1990s, mid-2000s, and 2010s bull markets – and none during the dot-com crash, 2008 financial crisis, or 2020’s COVID crash.
• Going back to 1950, whenever the market notched its first eight-day winning streak in a cycle, stocks always soared at some point over the next year. Average one-year forward returns? Over 15%. Average two-year forward returns? Over 25%.

The stock market is on an incredible run right now. In fact, it’s so incredible that it could mark the start of a new multi-year bull market. Specifically, the S&P 500 has rallied for eight consecutive days – its longest winning streak in two years.

Now, these big winning streaks are rare but not unheard of.

Over the past 70 years, the S&P 500 has notched about 100 different eight-day winning streaks.

However, they only tend to happen during cyclical bull markets.

This S&P Streak Likely Marks a New Bull Market

There were a handful of eight-day winning streaks in the 1990s, mid-2000s, and 2010s bull markets – and none during the dot-com crash, 2008 financial crisis, or 2020’s COVID crash.

So, while eight-day winning streaks do happen, they do not happen in bear markets.

Pertinently, this is the S&P 500’s first eight-day winning streak in this cycle (or since the most recent bear market in 2022).

That’s very bullish.

Going back to 1950, whenever the market notched its first eight-day winning streak in a cycle, stocks always soared at some point over the next year.

They also always soared at some point over the next two years.

Average one-year forward returns? Over 15%. Average two-year forward returns? Over 25%.

Point being: The first eight-day win streak for stocks is something to take seriously. It is a very bullish price signal."

MY COMMENT

I prefer to say we have been in a BULL MARKET that started in July of 2022. We recently had a "normal" correction but the BULL MARKET is intact.

Most of the negative issues have now dissipated. Earnings are STELLAR. I see no reason for this bull market to end anytime soon.

 

To continue the above.

On America’s Earnings Upturn

https://www.fisherinvestments.com/en-us/insights/market-commentary/on-americas-earnings-upturn

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

"Corporate America is back in the black.

Every now and then, markets move so fast that if you blink, you miss it. Case in point: Since its correction low (to date) on October 27, the S&P 500 is up 6.4%, erasing more than half its decline since July 31’s year-to-date high. Maybe the recovery is here, or maybe it is a false dawn before negative sentiment strikes back—short-term moves are always impossible to predict. Yet eventually investors’ emotions will be spent. Markets should then resume weighing fundamentals over the next 3 – 30 months relative to expectations—and on that front, there is more evidence the landscape looks bright. Case in point: S&P 500 earnings resumed growing in Q3, faster than analysts projected and showing the bull market that got underway in October 2022 wasn’t a mirage.

Through Q2, S&P 500 earnings had fallen three straight quarters on a year-over-year basis. Not every sector endured a negative threepeat, but the declines were broad enough to fuel lots of “earnings recession” chatter and arguably justify last year’s bear market. Stocks pre-priced the drop, as they usually do, and once they had registered the extent of the likely damage, they shifted their horizon further out and began looking toward the recovery, moving up before earnings did.

This created the typical early bull market backdrop of rising markets alongside falling earnings—to many, a contradiction. Just about every time this happens, it fuels a chorus of pundits arguing the market is wrong and stocks have gotten too far out over their skis, setting up trouble for overvalued markets once reality sets in. We suspect this seeming disconnect is partly why the decline that began in July touched so many nerves. We thought from the start that it was most likely a correction—a sharp, sentiment-fueled drop of -10% to -20%—and economic fundamentals seemed to agree, with most indicators pointing positively. But as earnings season got underway in October, consensus estimates said S&P 500 profitability would remain elusive, with another small decline the baseline forecast.

But results surprised to the upside. With nearly 85% of companies reporting so far, blended S&P 500 earnings (which aggregate the 426 reporting companies with estimates for the remainder) are up 4.1% y/y.[ii] Even that positive headline figure doesn’t quite capture how good the results were, as there was base-effect skew from big drops in Energy and Materials, which surprised no one considering the year-over-year reference point included last year’s big run up in oil, natural gas and other commodity prices. Aside from them, only Health Care was negative, and five sectors (Communication Services, Consumer Discretionary, Financials, Tech and Utilities) grew double digits. Communication Services and Discretionary soared more than 40% y/y.

Revenue growth was also positive and broad-based, though slower than Q2 at 2.1% y/y.[iii] Here, Energy, Materials and Utilities were negative. This shows you Health Care’s earnings decline stemmed more from cost pressures than top-line weakness, while Utilities’ falling sales and rising profits likely stem largely from falling oil and other energy commodity prices, which are a key input. Elsewhere, revenue growth mostly trailed earnings growth, showing Corporate America is at last overcoming the cost increases that hampered profitability—and signaling that the inflation bulge has mostly worked its way through the system.

Exhibit 1: S&P 500 Earnings and Revenues at a Glance


Source: FactSet, as of 11/7/2023. S&P 500 blended earnings and revenue growth, Q3 2023.

We present this with the usual caveat that these earnings figures are backward-looking. They reflect what happened between June and September, and we think stocks already priced it in. However, this also looks to be a mere down payment on more earnings growth to come. Analysts expect growth to continue in Q4, coming in strong enough to lift full-year results into the black. Projections for 2024 are also positive.

Those forecasts could be wrong, of course. But given 81% of companies reporting thus far beat expectations in Q3—more than average—and that analysts’ forecasts usually understate actual growth, we think it is likelier than not that analysts have underestimated as usual, laying the groundwork for positive surprise—the kind of positive surprise that propels stocks up the bull market’s wall of worry."

MY COMMENT

Of course I tend to agree. In fact.....earnings have been even better than stated above....about 88% BEATS. I am very pleased with how things are looking right now and well into 2024.

 

We have been seeing very negative sentiment over the past few months. Now....not so much. It is amazing the impact of a nice eight day rally.

Historic Sentiment Shift

https://www.bespokepremium.com/interactive/posts/think-big-blog/historic-sentiment-shift

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

"The S&P 500 and Nasdaq have extended their impressive winning streaks and that has resulted in a surge in bullish sentiment. The latest weekly AAII sentiment survey showed that 42.6% of respondents reported as bullish this week. That is now the highest level of bullish sentiment since the first half of August and perhaps more notably, a major turnaround from last week's multi-month low of 24.3%.



As shown below, bullish sentiment's 18.3 percentage point rise week over week is a historically large jump in optimism, especially in more recent years. That week-over-week increase ranks as the 22nd largest in the survey's history. It also just barely edged out the 17.88 percentage point increase in November 2020 for the largest one-week increase since July 15, 2010, when it had risen 18.43 percentage points.



The surge in bullish sentiment borrowed heavily from those formerly reporting as bearish. Bearish sentiment jumped above 50% last week, the highest reading since last December, but was nearly cut in half this week as it came in at only 27.2%



Whereas the jump in bullish sentiment was historically large, the resulting drop in bearish sentiment is even more significant ranking as the fourth largest on record.



Given there were historic moves across both bullish and bearish readings, the bull-bear spread in turn has experienced a top 1% week-over-week move. Only one week ago, the spread indicated that bears outnumbered bulls by a wide margin of 26 percentage points. Rising an astounding 41.4 points week over week, that spread is back in favor of bulls at 15.4.


"

MY COMMENT

This reflects an EPIC change in sentiment. It also reflects....CRAZY.....skittishness and short term thinking on the part of many investors.

The negative sentiment was way over done.....it was obvious. This quick turn shows the danger of relying on indicators like sentiment as an investor. It is totally erratic and unreliable. It can change on a dime.....in only one week. It is dangerous and useless as any sort of basis for long term investing.

 

I like this little article.

The Post Lock-Down Economy

https://ritholtz.com/2023/11/post-lockdown-economy/

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

"Today, Jerome Powell is making the opening remarks at the 24th Jacques Polak Annual Research Conference in DC. I’ll be on Bloomberg Radio from 3:00 pm-6:00 pm, and it’s the first topic we will address.

I wanted to gather a few thoughts and recent discussions together in preparation for that. These are what is driving my thoughts on Jerome Powell & Co and the risks future FOMC action presents.

1. The post-lockdown economy is returning to normal.

The chart up top shows the impact of Covid-19 on excess deaths in America. Squint and you can see the economic impact of the early surge of deaths in 2020, which slowed during lockdowns (and summer); the 2nd wave in the Fall of 2020 into Winter; the 3rd surge in the Summer of 2020 (Omicron variant) which ebbed then peaked in January 2022; then the Fall/Winter surge in 2022-23.

Then we re-opened in earnest.

The inflation surge really began in the Spring of 2021: Everyone came out of their lockdowns, armed with CARES Act cash in their bank accounts, bored out of their minds and ready to party. First, it was Goods from Cars to Houses to anything else they could buy; then, it was Services, including entertainment and (especially) travel.

But supply chains unraveled and people got vaxxed & boosted. Eventually, after all the pent-up demand caused by 18 months of cabin fever broke, things began to normalize. We are mostly there, but some issues still remain.

2. Shortages remain a big source of persistent inflation.

We wildly underbuilt single-family homes for about 15 years; Semiconductors are still not available in quantities needed to hit pre-pandemic levels of new car sales of 16-17 million annually; There is a huge shortage of laborers as people have upskilled and moved on to better gigs. As evidenced by the successful strike resolutions in labor’s favor, the balance of power has shifted ion the labor markets.

I do not see how higher rates in general or higher for longer will solve these problems.

3. The Fed is done raising rates.

It was obvious to me the Fed was done (or should have been) raising rates in May. I insisted they were done before the most recent meeting (November 1st). There are many reasons for this, but the most =important ones are:

a) They are making housing much worse;
b) Rates came down despite — not because — of the Fed;
c) Inflation peaked last June and has continued to subside since.

The chart above explains much of what happened.

4. The Fed’s models are old and broken.

I don’t have a problem with using econometric models — the issue is that all models are limited, incomplete, and often erroneous depictions of reality. You forget that at great peril.

I was aghast to hear Minneapolis Fed president Neel Kashkari say “It’s not that our models are wrong, it’s the dark matter.” This reflects a failure to understand the limitations of models in general and the issues with your own models specifically. It seems that I must continuously go to George E. P. Box‘s quote “All models are wrong, but some are useful.”

Who are you gonna believe, your models or your own lying eyes?

~~~

The risk today is that the FOMC will tip us into an unnecessary recession, and send the unemployment rate over 5%.1 There are few things more frustrating than self-inflicted, avoidable errors."

MY COMMENT

It is way past time for the FED to simply fade away. It is way past time for the FED to simply.....sit down and shut up.

We need to trust the economy and the markets and American business. A bunch of government ELITE bureaucrats have ZERO ability to manage or control the economy.

I might change my mind....just a little bit..... if they would ever mention the primary cause of economic turmoil and inflation.....out of control government spending.

 

A very good open today. With gains across all the big averages. Although....the gains have moderated as we head toward mid morning.

I looked at my account early today......a nice profit so far....with only one stock in the red....HD.

I am now about 4% from my all time high. My kids account....which I manage......is hitting all time highs right now. I suspect that many people on here are flirting with all time highs in their accounts. This is the pay off for being a long term investor.

The Ten Year Treasury is currently down at 4.604%.

 

I saw earlier today where "Consumer Confidence" is down. The consumer expectations of future inflation is UP.

https://www.fxstreet.com/news/us-uo...-604-in-november-vs-637-expected-202311101506

Although I consider this totally useless as any sort of tool for investors. This sort of measure is simply SILLY. Just like market sentiment....it can change on a dime. AND...it is influenced and impacted by many factors that have nothing to do with investing, business or the markets.

I am sure the largest factor that impacts these numbers is......the media.

 

I had a ....MONSTER....day in the markets today. ALL stocks UP today. And not a single one below 1% on the gain for the day. In fact I had five stocks up over 2% today.......NVDA, MSFT, COST, AAPL, and AMZN. NVDA was up by 2.95% today.

An all around killer day for me today......with a nice beat on the SP500 by 0.81% to top it off.

A GREAT end to the week.