By John Stewart, chief investment officer at Farmers Trust Co.
Week in Review: Better Than Expected
As I’ve said many times in one way or another on Investors Edge, investing in markets is all about expectations.
This earnings season has been no different. At the beginning of the year, the S&P 500 was expected to grow second quarter earnings, the ones that are now being reported, by more than 8%.
However, at the beginning of July, just before the actual reports starting coming in, the expectation had fallen to just 2% growth. It’s no wonder than everyone is now BEATING expectations when they report their quarterly results.
This isn’t a new phenomenon; it happens almost every quarter with corporate earnings.
The direction of estimate changes is what matters. Right now, estimates are falling at a much slower rate than they were earlier this year – hence the reason why stocks are going up!
Featured Insight: Markets Climb a Wall of Worry
There’s a popular saying that markets love to climb a wall of worry.
And despite stocks trading at or near all-time highs, there’s still plenty of worry out there.
The percentage of bullish investors out there as reported by the American Association of Individual Investors stands at just 36%, and that number has fallen for 3 weeks in a row despite strong performance in equity markets.
Another survey showed less than 10% of investors are getting more aggressive with their portfolios, while nearly 40% are getting more conservative.
I could cite plenty of other examples, but the bottom line remains that investors are quite far from being “all-in” on stocks, which is a good indication that this rally still has room to run.
Looking Ahead: Fed Palace of Intrigue
There’s no shortage of drama surrounding the Federal Reserve Bank.
The feud between President Trump and Fed Chairman Jerome Powell has been well-documented, but the critiques (yes, mostly from administration officials and surrogates) toward Powell continue to grow and get louder by the day.
First it was pressuring the Fed to lower interest rates now that inflation has moderated – that hasn’t stopped – but, more recently, it’s been criticizing the Fed’s $2.5 billion building renovation in Washington – that does seem a tad excessive if you ask me.
Either way, next week’s Fed meeting will be quite interesting even though there’s about a 99% chance they don’t do a darn thing – at least regarding any interest rate adjustments.