TGIF! October 16, 2015

When Summer turns to Fall on Wall Street, it’s usually an active and frantic transition.  It’s not just about the weather.  August and September are historically challenging for investors.  Stocks generally turn red, reflecting the Summer heat and emotional tension.  This year saw a lot of it.  But the Fall weather tends to cool things down, and the trees shed leaves as the Autumn wind sets in.  So far, October has been a nice reprieve from the Summer heat on Wall Street. Losses have been erased to some extent, but we don’t think we’re out of the woods quite yet. 

The issues that caused the scare in August, namely China, Europe and the Fed have not been resolved.  Unfortunately, we don’t see resolution any time soon.  What ails China is a multi-decade project.  It’s working itself out.  European issues have been nagging for a while, with no end in sight.  The Fed blew its chance to raise interest rates in September, and now have boxed themselves into a corner. December is the last chance for a rate hike until 2016.  But stocks and bonds are liking it right now.

So what’s got Wall Street’s attention in October?  2 things: Earnings Season and Baseball.  When the Boys of Summer grow into the Men of Fall, we know playoffs are finally here.   When every game is a must win, some players show signs of anxiety and fatigue.  Those that have been there before don’t panic.  Experience counts.  This applies to the investment markets as well.

It’s early in Earnings Season.  So far, just over 10% of the S&P 500 companies have reported for Q3.  3/4 of those companies have beaten earnings estimates.  That’s good.  Unfortunately, less than half have beaten on revenues.  At this stage of the cycle, we’d like to see more revenue beats, which is the best indicator of demand growth.  We see things picking up on this front.  The US economy is still in solid shape.  Main Street continues to move at a feverish pace with consumers consuming, innovators innovating, and commuters commuting.  The Bay Area traffic certainly reflects all of this. The Summer slowdown will lead to a sprint to year’s end.

Earnings on Wall Street are like the runs scored in a game.  Baseball is a long game with plenty of momentum changes.  It’s a game of strategy.  It’s active and reactive.  The pace can be slow, and then speeds up quickly.  It’s about offense and defense.  There’s no clock or formal time limit. Investing today has many similar characteristics.  They both require physical and mental stamina.  And if you recall from the great philosopher Yogi Berra: “Baseball is 90% mental, and the other half is physical”….

Have nice weekend.  We’ll be back, dark and early on Monday.


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