Ramblings of a Portfolio Manager-
You may be wondering why we write this on Monday after the close and not before the open. Looking back you will see that Politics has been the biggest mover of the market this year. Just look at the past weekend, talk of quasi nationalization/equity conversion of the bank debt and stipulations on repaying government debt made for a fun Monday and a 5.6% drop in the Russell 2000 index. We like to digest our weekend, put our toys away, and focus fresh on Monday.
Earnings season is underway and, so far, it seems that analysts have indeed lowered the bar sufficiently for most companies to beat. By and large, the reaction of stocks to the “surprise” has been positive and the market just completed its sixth week of gains, some of which it appears as of this writing was in anticipation of said “positive” surprises.
Speaking of toys, when my eldest son was 4 he threw all of his beach toys off a 10’ high seawall. After they hit the sand and failed to break, I asked him “now what?” How was a 3’ kid going to get those things back up without Dad’s help? This little parable might just be a metaphor for the months following this earnings reporting season. Once earnings season is over and investors come to believe that earnings have hit bottom, we need to ask “now what?” Will earnings bump along the bottom or will we start to see a resumption of growth? Well, we do have “Dad’s” help but is he going to keep some of those toys once he helps retrieve them? One thing’s for sure, if the market is indeed looking ahead as always, it’s in anticipation of having more toys to play with than it does now. And, like any small child, if it doesn’t get what it wants, watch out…
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