By John Stewart
Chief Investment Officer at Farmers Trust Co.
Week in Review: Much Needed Relief
After five straight down weeks for the market, stocks finally bounced back this past week on hopes of a de-escalation in the Iran war situation.
The Iranian president released a statement that gave no details about any forthcoming deal with the U.S. but stated that Iran has never started a war and has only acted in defense of its own interests.
President Donald Trump addressed the nation Wednesday evening; he didn’t given any indication that a deal was forthcoming but rather continued to threaten Iran that he would bomb them back to the Stone Age if they didn’t surrender to his demands.
Nevertheless, he continued to claim that we were nearing the end of the conflict.
Markets were volatile Thursday, but the S&P 500 still finished nearly 5% above the Monday lows.
Featured Insight: Growth Investing Requires Imagination
Investing in growth – that is, investing in companies that either are growing quickly or have the ability to grow quickly – has been very profitable over the past decade or so.
Make no mistake though, investing in growth is a high risk business – during the dot.com bust the NASDAQ index lost some 80% of its value.
There have been many other booms and busts in the growth trade along the way as well.
While some investors are naturally attracted to investing in growth because of the profit opportunity, others have a difficult time imagining how the future could change so much to justify the lofty valuations of many growth companies.
If you have a good imagination, patience, a strong stomach for volatility and you can accurately envision where the world is heading without unrealistic delusions of grandeur, investing in growth may be right for you.
Looking Ahead: Earnings Always Tell the Tale
Over the past several weeks, markets have been trading on fear, and over the past few days … hope.
The fear is that the Iran war will pressure earnings because of higher energy costs and/or reduced business activity.
Interestingly enough, analysts earnings estimates haven’t just held up over the past month – they’ve actually gone higher!
Even with the higher energy costs and concerns about where things are heading economically, analysts are feeling confident that companies will be able to meet or exceed their profit estimates for the next couple of quarters.
This could be an indication that the underlying economy is far stronger than many give it credit for. With first-quarter earnings season set to begin in just a couple of weeks, we won’t have to wait long to find out.