[Market Madness] Edition 0095
Sunday Recap
Another week
Well folks, like clockwork, we are back and ready to get started for another week of thrills and chills. I feel like a commercial announcer for Six Flags, but alas, we are still focused on the markets, and I’m still terrified of roller coasters. Another big week is ahead of us for economic data, market action, and earnings. In lieu of a quiet weekend, I’ve looked toward a general macro piece for today to set some expectations moving forward and some practical investing advice from a long living trading legend. Please enjoy today’s piece.
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Fundamentals
Friday’s Close:
Dow Jones: -0.69%
S&P 500: -0.62%
NASDAQ: -0.94%
US 10 YR: 0.584%
Crude OIL: $41.20
Market Madness Portfolio: -0.58%
COVID 19 Global Cases: 16,076,713 (updated Sunday)
Indices Overseas:
FTSE 100: -1.21%
Nikkei 225: -0.58%
Hang Seng: -2.21%
TEDRATE: 0.16
LIBOR (3 month): 0.24450%
On earnings and GDP
Despite having not talked much about it in the past few days, the focus within the capital markets lately is still on earnings season, which is poised to be the worst once since 2008.
Many are already bracing themselves and their portfolios for the sour earnings numbers in the headlines; that much is all but set in stone at this point. The bigger picture that investors and portfolio managers are looking toward are the management perspectives and forward guidance documents. These provide much deeper insights behind the earnings numbers, outlining what has happened in the quarter and what the firm is expecting to happen moving ahead into the next quarter and beyond.
But there is more to look at than the bottom line earnings. We must also consider top line revenue, where there were any large/unexpected expenditures, and what firms’ balance sheets are looking like. Debt to capital ratios are heavily skewed due to the lack of activity in the equity funding space and are leaning heavily on low-interest bearing debt to carry themselves out of the COVID 19 mess. Plus, with the backstopping by the Fed in the debt market, the liquidity of the funds here are all but guaranteed.
Putting all of these factors together (including the upcoming sour GDP report), it continues to grow unlikely that the underlying fundamentals behind stock rises lately are holding any truth. Opposite of what we traditionally fear, the market appears to be in a melt-up phase, as market participants are buying up securities out of anxiety rather than panic selling.
Martin Zweig outlined some of the greatest investing rules that are still widely followed today:
The trend is your friend, don’t fight the tape.
Let profits run, take losses quickly.
If you buy for a reason, and that reason if discounted or is no longer valid, then sell.
If the values don’t make sense, then don’t participate.
The cheap get cheaper, the dear get dearer.
Don’t fight the FED (less valid than #1).
Every indicator eventually bites the dust.
Adapt to change.
Don’t let your opinion of what should happen, bias your trading strategy.
Don’t blame your mistakes on the market.
Don’t play all the time.
The market is not efficient, but is still tough to beat.
You’ll never know all the answers.
If you can’t sleep at night, reduce your positions or get out.
Don’t put too much faith in the ‘experts.’
Don’t focus too much on short term information flows.
Beware “new era” thinking, i.e. it’s different this time because…
Although these are dated, they still reign true today, and some are very true to the current tide seen in the markets. I’ve bolded the ones that I find particularly attune to the current times (power of 3).
I think these are some great ‘big picture’ thought points to leave you with as we continue further into new and challenging waters.
Read more here, here, and here.
Quick Takes
WH economic advisor, Larry Kudlow, on the latest with the stimulus bill. (via CNBC) (I’d like to see the bill before I get too excited)
Brand new planes collecting dust. (via WSJ)
Zero-fee ETFs? (via FT)
Florida, the new U.S. COVID 19 epicenter. (via CNBC)
Reader’s Corner
The reader has taken the weekend to clear mind and find some positive, good news outside of the troubled financial, economic and political news. Have a great weekend to everyone!
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Behind the Madness
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