The “New Normal” & the Market: February Update

Every business was forced to recognize the boundaries changed back in March of 2020 — and they changed forever. A very new — advanced and opportunistic — "normal" is ahead. Investors have two basic choices as we conquer the landscape ahead and climb to that expansive horizon. We can...

Adapt, remain flexible, be disciplined, and stand patiently through the storms.   

Or, stay afraid, angry, dismayed, concerned, or any other emotion which blocks us from forward movement, and wake up one day at DOW 60,000, coming out of a fog, and wonder how we got here.

Disregarding the massive shifts technology is bringing to every corner of the business/service/retail world will be a dreadful mistake as the next 5, 10, and 20 years unfold.

Earnings are soaring.

Margins are right behind. Thank the lessons noted above...and then buckle up. Corrections will become fewer and farther between. They will also happen very rapidly, scaring many terribly — and then they will be erased.

To give you a sense of what time and evolution do to "terrible crashes" in the markets, note the S&P 500 chart below - and what the October 1987 Crash (red star) and the GFC of 2008/2009 in blue now look like:

The lesson? There will be a time in the future where the Crash of '87 will not even show up - and the 2008/2009 GFC will look like the 1987 Crash looks like now.  And then?

The next monster will show up.

Will the Bubble Burst?

Bubbles tend to come when almost no one is mentioning the idea of a bubble. Sort of like "market tops" tend to not arrive when the entire world of experts is telling you how much you should be concerned about the idea of a market top.

Tops, bottoms, bubbles – all work the same, in general. They unfold when no one is watching. They unfold when almost no one is projecting them – unless it ends up just being lucky. The difficult part is being steady, strong in the storms – and patient enough to just let it unfold.

People make markets and 88 million Generation Y kids are growing up and beginning their lives. So get ready for more change. Get ready for more "new ways of doing things." Get ready for that queasy feeling of the ground shaking under your feet — because it is — as change roils the entire system.

Analyzing Q4 Earnings

We are off to a great start in the Q4 earnings season, with a historically high proportion of the reporting companies not only beating consensus EPS and revenue estimates, but also providing positive and reassuring guidance and commentary about the current and coming periods. This is helping sustain the positive revisions trend that has been in place since July 2020, as the chart below shows.

Had we sat in a room a year ago and been told that in the next 12 weeks, the entire world would be forced into a global shutdown due to a pandemic, what percentage would you have thought earnings would be down by - a year later?

I can almost guarantee no one thought "about 5%." 

More compelling for the patient, long-term investor?  These are not signs of a "slowing" U.S. economy - especially when considering that many elements in the vast volume of economic data are now actually higher than pre-pandemic levels.

Don’t let the media mayhem scare you away from what is headed at us. Get ready, stand tall, remain focused and patient.  

The best is still ahead - for the next 30 years or so.

In Closing

It is understandably difficult and a bit of a mind-game to get your arms wrapped around all of this good news when the media is pouring bad news into your life with a double-gauge firehose. Sadly, this dichotomy is unlikely to end anytime soon.

Stay focused on what many will not see. Think above the clouds. Try hard to not get lost in the fog. See the horizon which is far beyond - and vastly more beneficial - than the headlines. We must all remain diligent and prepared to always stand tall against the storms. Standing apart from the crowd permits one to always be ready to do what most will not. More earnings are coming - the fear-mongering march will continue as the headlines pounce on anything about a miss here or a miss there.

Our takeaways:

• Every challenge of 2020 made us all stronger.

• Every setback of 2020 made the future reward for the patient, long-term investor better and more broad-based.

• Every bad headline of 2020 hid the better horizon ahead from too many.

• The future is brighter than currently perceived.

• The Decades of Disruption ahead carry massive opportunity.

Buckle up! The ride is just getting started.