Buffett is Buying BondsWarren Buffett is pouring tens of billions of Berkshire money into short and longer-term bonds. And I'm not surprised... For e.g., Jul 9th I offered this post "Think About Adding Bonds". Shorter-term bills were offering investors ~5.50% and the longer-date 10-year bond above 4.0%. That's attractive for a number of reasons... this post explains why.
Apple: An Incredible Business – But Don’t OverpayThis week the final two mega-cap tech names reported Q2 earnings. Amazon handily exceeded what were very low expectations. AWS (Cloud) sales rose 12% year over year - much better than feared - given the soft results reported from Microsoft's Azure. This sent the Cloud and eCommerce giant higher by ~11% . On the other hand, investors had a very different reaction to Apple's earnings. The iPhone maker's results were mostly inline. But "inline" is not good enough when it's trading ~30x to 31x forward earnings. So what is the right multiple to pay for Apple? And can it reignite growth looking ahead?
Half Way Through Earnings: 81% Beat on EPSThis week was the busiest week of earnings on the calendar. Half of all S&P 500 companies have now reported for Q2. So far so good! 81% of companies have beaten earnings per share (EPS) expectations - by an average of about 6.4%. By way of comparison - prior to COVID - the average EPS beat was in the realm of ~3%. What's more, about 64% of all companies have also beaten top line expectations. The question is will this continue in the second half?
The One Thing Driving the Market It's risk on. That's the market's sentiment. Question is whether that risk is worth it? There are only a handful of stocks carrying the market higher - a sure sign of both fragility and bearishness. Are there are only "10" stocks that can grow? We have not seen a market this narrow since the dot.com bust. Now should names like Amazon, Google, Apple, Microsoft, Meta and Tesla pull back from nose-bleed valuations - the whole house comes down with it.
Equities Often Slow to Connect the DotsLast week I warned the market was poised for a sharp pullback. This week we got it. In short, both fundamentally and technically the market felt vulnerable. Market multiples pushed 19x forward on little substance. And from there, it did not take much for the bulls to lose their nerve...
Remain Wary of PermabearsJeremy Grantham is a well known permabear. This week - he called for a possible 50% correction. Sure... it's probable we see something in the realm of 20%... but 50%? I decided to look at Grantham's track record against the S&P 500 over 25 years. Guess what - he has woefully underperformed the market. Hardly surprising. Beware of doomsday 'crash callers' like Grantham... and he is not alone. They are dangerous.
It’s Earnings Season – Will They Meet Expectations? Earnings seasons starts this week (Friday) with the banks. Across all sectors - analysts expect earnings to expand by 4% in 2023 - or around $230 per share for the S&P 500. If we don't experience a recession - this feels probable. However, that's the question - are we likely to experience a contraction? If so, it's most unlikely we will see expansion - which implies the S&P 500 feels expensive around 4100.
Excited About the Opportunity Ahead!I bring good news and bad news. The good news? We have done a lot of the heavy lifting. The rate rise cycle is maturing. Inflation is falling. And China appears to be re-opening. Now the bad news... rates are not about to repeat what we saw the last decade. And the Fed is sucking out liquidity. What's more - corporate earnings are about to contract. Put that together - stock prices will likely fall. And that will represent opportunity...
More Tricks than Treats?The market is up around 11% from its recent lows. Its rallying on the hope of a dovish Fed. My advice is tread carefully... you might get 'tricked' rather than 'treated' this Halloween. The upside does not handily outweigh the downside risks. Bear markets are known to do just that...
We’ve Seen This Script BeforeQ3 2022 big-tech earnings are behind us - with only one winner. Apple reported inline results with weak guidance - but enough to send the stock 7% higher. The rest however were slaughtered on weak earnings and forward guidance. But it was the Facebook's "metacurse" which sent the stock reeling almost 30%... Amazon was also crushed on a poor Q4 outlook.
