What Earnings, GDP, and Volatility Are Telling Us

With 48% of companies reporting FACTset tells us Q3 earnings are running 22.5% ahead of Q2 earnings, which ran 20% ahead of Q1 earnings, which ran 17% ahead of Q4 earnings, which ran 13% ahead of Q3 earnings.

As Q3 initial reporting of 3.5% GDP is adjusted in November and December expect it to move higher to align more closely with Q2 4.2% GDP. Drill down on workforce participation rate (37% not participating) and capacity utilization (78.1%) and you will see essential support for sustainable growth is deep.

Recall the long runway created by Regan’s Economic Recovery Tax Act and the sell-off in October of 1987 to springboard the market to its massive Bull Run beginning in the mid 1990’s. Considering response to and  potential for Trump’s Tax Cut and Job’s Act, combined with fairer trade, regulatory reform, foreign policy progress, and 8 years of repressed growth despite massive stimulus from quantitative easing; expect the adjustment period we are going through now to be much shorter and less severe than 1987.

We are witnessing a market adjusting to perverse over valuations in FAANG stocks. They will continue to drop however the broader market will quickly take up the slack as Blockchain technology goes mainstream to guarantee the integrity of search and the privacy of social media platform users.

The Wild Card is the Fed. Will it continue to over reach with another rate hike in December? September FOMC Minutes showing desire to shift policy from neutral to restrictive contributed to market volatility in a significant way. Was this brilliant jawboning by the Fed to balance valuations? Or will the Fed continue to hike despite year over year inflation target of 2 % being hit dead on by personal income and consumer spending.

2599.25 is .382 retracement back to the November 9, 2016 (Election Night) roll-over adjusted ESZ low of 2035.00. Should the market bottom here expect it to regain its footing prior to year-end; and set the stage for a 2019 to outperform all expectations.

Remember the talking heads sensationalize reporting to keep you tuned in. Most of them are either unqualified, biased, or intentionally misreporting to deceive, manipulate, and exploit their audience. Follow your curiosity. Do the digging and rely on your own reasoning. You will be rewarded with much higher market awareness and find yourself ahead of instead of chasing price movement.