What’s Going On?

The markets coming off a big week of fresh data. We got so much thrown at us with a slew of earnings from many of the largest companies in the market. We also got bombarded with inflation and jobs data. Let’s evaluate all of it to help you better frame your investment decisions.

Let’s start with the macroeconomic data. The economy seems to be chugging along. In my opinion, that’s been the prevailing narrative this fall, once the job market and unemployment stabilized. That still seems to be where we are, however, we did just get a downbeat jobs report that showed the economy only added a meager 12,000 jobs last month. That was well below forecasts for 100,000+. But, it’s hard to fully assess at the moment. Two major hurricanes swept through the Southeast, causing lots of disruptions in business activity. Furthermore, the report even acknowledged weaker response rates. So, it’s hard to give a lot of significance to the jobs miss.

The latest GDP estimates also point to an economy that’s doing fine. You could say the same for inflation. It’s still above 2% , but gradually coming down. If it fell too fast, that may not be a good thing at this point. It would likely signal weakness in the economy.

The latest GDP estimates also point to an economy that’s doing fine.

Now, to earnings, which mean virtually everything for stock prices over the long-term. This was the week of earnings season, when most of the Magnificent 7 tech stocks reported results. On the whole, their reports were good. They beat sales and earnings expectations. But, with AI companies, the market today seems to want companies not just to beat numbers, but annihilate them. So, from this perspective, it was a more mixed picture. Google and Amazon were received most favorably. Apple, Microsoft and Meta got lesser treatment. The market seems to now be parsing out which companies are showing real growth from AI vs those who are still talking about that growth.

Taken all together, we have a picture that looks like this:

The economy continues to expand and that’s trickling through to earnings. Inflation seems contained for the moment, but we’ll have to pay attention to it as we get clarity on the presidential election and the pace of rate cuts from the Fed. So, next week will be a doozy for sure!

The economy continues to expand and that’s trickling through to earnings.

The real conundrum for investors seems to be pricing. The chart below shows how much you’re paying for $1 of S&P 500 earnings. You can see we’re well above both the 5- and 10-year averages. And only a point or so below where we were at the end of 2020 when the economy was running on a stimulus-driven cash binge.

As I’ve written about several times, pricing is almost irrelevant in the short-term, but almost the only thing that’s relevant in the long-term. So, you have to ask yourself: am I a short-term trader or a long-term investor?

The answer to that question will inform how you invest here. If you’re a short-term trader, this newsletter is probably not for you. So, let’s talk to the long-term investors. The message here is that you should stay well anchored to your long-term investment plan. If your plan calls for 70% exposure to stocks, it’s probably best not to exceed that at the moment. You may even want to look at reducing it a tad. Say 60% or so.

The answer to that question will inform how you invest here.

Two potentially good things can happen if you focus on getting good value from your investments. First, you may be able to buy more assets when pricing is better. That could help you improve your long-term return. Second, you may be able to cushion your experience a bit. Drive your investments with more comfortable tires.

Please share your thoughts. I’d love to hear your opinions.

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.

This material is provided as a courtesy and for educational purposes only.

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.