The Big E

Life these days. It’s so easy to get distracted. Here I am all set to write about the latest trends in the markets. And, I’m looking out the window, wondering when the excavator is going to show up to pick up my tree stump that Helene uprooted two weeks ago. That made me wonder what I’m going to eat for lunch, which made me wonder whether chicken parmesan is even an option when I look inside the refrigerator.

It doesn’t matter what time today the tree guys are coming. I’m not going to play in that part of the yard today. It doesn’t matter what’s in the fridge. I just ate breakfast and lunch is still three hours away. I’m not hungry. All that matters right now is crafting a newsletter with insights that hopefully you, the reader, will find useful.

The distracted life can also apply to our investing. We can worry about macroeconomic data—jobs, inflation, GDP. We can hyperfocus on geopolitical events—Ukraine, Israel, Iran, oil. And, we can focus on recent pricing—surges and slumps—to help guide our decisions. Yes, some of this stuff matters for the markets, especially in the short-term.

The distracted life can also apply to our investing.

But, for the long-term investor, the only thing that truly matters is earnings. Are earnings rising over time or are they declining? If they’re rising, they’ll lift stocks over the long haul. If not, they won’t. Simple as that. So, while it’s fun at times to fret about the latest issue that could upend the markets, or conversely, fantasize about unrealistic growth rates, it’s best to anchor yourself to earnings and realistic long-term growth expectations.

Last week, the markets kicked off earnings season. It’s a chance for companies to tell us how they did in the third quarter and give us their outlook for the near future of their business. This information is really important. It’s a report card.

The real juicy reports come in a few weeks when the mega cap tech companies reveal their results. These are many of the largest companies in the market and are also involved in one of the hottest current themes, artificial intelligence.

The real juicy reports come in a few weeks when the mega cap tech companies reveal their results.

But, earnings season kicks off with banks in focus. These reports I find particularly interesting because they inform us not only on how each bank is faring, but also how the consumers and businesses they serve are handling the current environment.

For months, there’s been lots of talk about consumers tightening their belts and becoming more discerning in how they spend. We’ve also seen higher levels of consumer debt. Bank executives can help us better understand these trends.

The big banks that reported last week told a similar story—business is good and the economy is holding up. That’s positive news. We’ll have to watch to see if this is confirmed by other companies in the coming weeks.

The big banks that reported last week told a similar story—business is good and the economy is holding up.

Meantime, here’s one nugget for caution. Markets move on expectations. And, expectations are already high for earnings both next year and in 2026. According to Yardeni Research, consensus forecasts call for 13-14% earnings growth in each of the next two years. That’s above the long-term average. So, you’d have to think that growth is already priced in to varying degrees. That means companies will likely need to hit or exceed those elevated marks to excite investors.

This is why we argue to stay in your lane right now. Keep your long-term strategy in balance.

If you’re not sure what a balanced strategy looks like for your specific situation, reach out.

If you’re not sure what a balanced strategy looks like for your specific situation, reach out.

This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.