A Huge Week for the Market Starts Now
So much for a honeymoon... Accusations of lies and deceit... A critical 'truth' about investing... A huge week for the market starts now... What we've learned from earnings season so far... In the mailbag: More great feedback from Ten Stock Trader 'beta testers'...
'So much for a honeymoon...'
Earlier this month, our colleague Austin Root – portfolio manager for our Stansberry Portfolio Solutions product – addressed some of the sharpest criticism we've received in some time. As he wrote in April's Monthly Briefing...
After just my second month as portfolio manager of the Stansberry Portfolio Solutions products, joining Porter, "Doc" Eifrig, and Steve on the Investment Committee... and after the first time I shared a personal story in our monthly update... one of our paid-up subscribers, Robert S., dropped me a short note:
Austin Root is a liar...
The Flash Crash happened so quickly that myself and even Kramer put in limit orders to buy several thousand shares of a popular stock and missed the market because it recovered to quickly.
Robert was referring to Austin's experience during the 2010 "flash crash," when his fund was able to buy some of its favorite stocks at a substantial discount. (We shared the full story in the March 19 Digest.)
Longtime readers know we take our responsibility as independent financial analysts seriously...
So you likely won't be surprised to learn that contrary to Robert's accusation, Austin's story was absolutely true. As he explained...
Robert took issue with my assertion that "some of the buys we made that afternoon produced healthy gains" as the market bounced part of the way back. He and CNBC personality Jim Cramer could not get limit orders to execute, so how could anyone have been able to make a profitable buy that day?
Actually, my fund made good purchases on both sides of our portfolio. We bought long investments that later went up, and we covered short positions that were down on the day (and later recovered).
But before I get into that, let me start with trust: We will never lie to you. Know that the information and recommendations we provide have been well-researched and delivered with one goal – to optimize your portfolio returns over the long run.
We know that many subscribers use our recommendations to invest significant portions of their wealth. Trust is paramount, and we'll never take it for granted. We'll never mislead you... whether in our research or in the stories we use to introduce our letters.
So how was he able to take advantage of that day's volatility when many others weren't?
How was his fund able to make money when even professionals like Jim Cramer could not? More from Austin...
The answer is simple, really. And it's buried within the question: We didn't use limit orders. We accepted the prices the market provided right then and there. Limit orders are often great. But they don't always work, not in every market environment.
Now, we don't bring up Robert's note just to pat ourselves on the back...
And we don't mention it to brag about Austin's investment prowess.
Instead, it provides a timely reminder about one of the most important "truths" in investing: You can't control the market. And even the world's best investors get it wrong from time to time. As Austin explained...
No one strategy or investing tool works 100% of the time in every market condition. Even a smart, conservative technique like limit orders can sometimes work against you. The market will not always hit your limit order. Sometimes it goes the other way...
Yes, you can sometimes "bend the arc"... You can take steps to improve your investment outcomes. But you can't make the market go the way you want by sheer force of will or level of intellect.
Sure, over the long term, the market moves "up and to the right." But that growth doesn't come in a straight line. Sometimes markets go down... and go down a lot. As a result, it's impossible to always produce positive returns that always outperform the market. Can't be done.
Austin says investors must balance their goals with a realistic assessment of the market environment...
And right now, he says that environment is anything but certain. Like us, he notes that both bulls and bears have plenty of evidence to point to today...
Moving forward, our expectations for the rest of the year remain guarded but optimistic. In general, stocks and bonds are expensive, and a number of factors are working against the ongoing bull market: reduced fiscal stimulus, rising interest rates, and U.S. trade tariffs and protectionist policy that could do more harm to overall U.S. growth than good for U.S. metal workers.
Still, these worries are at least offset by some positive factors. Business confidence is high, employment and consumer spending remain healthy, and earnings growth should be the strongest we've seen in years.
So while we remain concerned with the longer-term outlook for most risk assets, this is not a "sell it all" moment. We want to keep [our] portfolio invested in high-quality companies with excellent cash-flow characteristics and potential for both growth and yield. And we will do so in a prudent way, with protection. And we'll do our best not to overstay our welcome.
Speaking of earnings, this week is an important one...
Nearly 200 of the 500 companies in the S&P 500, as well as 12 of the 30 components of the Dow Jones Industrial Average, are scheduled to report
These include five of the 10 market-leading "FANG+" tech stocks: Facebook (FB), Amazon (AMZN), Google parent company Alphabet (GOOGL), Baidu (BIDU), and Twitter (TWTR). They also include more than half of the 25 U.S. companies most exposed to a potential "trade war" – including Halliburton (HAL), 3M (MMM), Texas Instruments (TXN), Boeing (BA), Intel (INTC), and Chevron (CVX) – according to Credit Suisse.
In short, by the end of this
In the meantime, we can say two things about earnings results to date...
First, companies have been trouncing expectations.
According to market-analytics firm FactSet, 17% of S&P 500 companies have reported as of Friday... And the vast majority have beaten expectations for both earnings per share (80%) and sales (72%). This compares to an average historical earnings "beat rate" of 64%, according to news service Reuters.
FactSet also notes that earnings are on pace to grow 18.3% year-over-year, which would be the highest since the first quarter of 2011. Meanwhile, average net profit margins are on track to reach 11.1%. This would be the highest profitability for S&P 500 companies since the firm began tracking this data in 2008.
Second, the market's reactions to both positive and negative results have been unusually subdued. As FactSet senior earnings analyst John Butters explained in a report on Friday...
Companies that have reported upside earnings surprises for Q1 2018 have seen an average price increase of 0.1% two days before the earnings release through two days after the earnings. This percentage increase is well below the 5-year average price increase of +1.1% during this same window for companies reporting upside earnings surprises.
Companies that have reported downside earnings surprises for Q1 2018 have seen an average price decrease of -0.9% two days before the earnings release through two days after the earnings. This percentage decrease is much smaller than the 5-year average price decrease of -2.4% during this same window for companies reporting downside earnings surprises.
Regular readers know we don't expect this to last...
Whether the recent correction continues or the bull market resumes, we expect plenty of volatility in the months ahead. And it could begin as a huge number of companies report results this week.
It all kicks off tonight, with Alphabet reporting earnings after market close. Stay tuned to the Digest for updates.
In the meantime, our advice remains the same: Stay long, but stay smart. Make sure you're using good risk-management strategies like conservative position-sizing and trailing-stop losses. And consider "hedging" your portfolio with some extra cash, a little "insurance" in the form of physical gold and silver, and a few select short sales.
One last note before we sign off today...
As you've likely seen in the mailbag over the past few days, the feedback on our new Ten Stock Trader has been overwhelmingly positive.
To be clear, this service isn't for everyone. But if you're in a position to speculate and have the time and interest to trade shorter-term market moves, Ten Stock Trader is another fantastic way to hedge your portfolio against whatever comes next. Greg's strategies can uncover explosive opportunities in bull markets and bear markets alike.
But again, you don't have to take our word for it. For a few more days you can sign up to "beta test" this service for yourself... at up to 85% off what we'll eventually charge when we launch to the public. Click here for the details.
New 52-week highs (as of 4/20/18): W.R. Berkley (WRB) and
The feedback on Ten Stock Trader continues to roll in. As always, send your questions, comments, and concerns to feedback@stansberryresearch.com.
"Greg, even before the first trade, I have loved your work. I have always been a 'visual learner.' Write down directions with words and I can remember anything 5 minutes later, show me a map with the route and I can draw you a picture of it while driving the route a day later. I would get in trouble with my math and science teachers in high school for not taking notes, but if I was taking notes (writing words) I couldn't be watching what the teacher was doing on the blackboard.
"All the analysis of the charts to me has been wonderful! It explains things that I could
"Greg, that was a nice call on puts. My first put trade ever. I'm a nurse at Moffitt Cancer Center and managed to get out of the trade while taking a quick lunch break! Got in @ 3.06 and out @ 4.04. I would have stayed in a little longer, but I had to get back to work.
"If this service could send text recommendations that would be efficient and super convenient. I realize you are working on that. Hope it happens soon. Anyway, I really like your education styled analysis. I feel like I am in a classroom learning with real money. Great start." – Paid-up subscriber Sam S.
"Slow down, Greg... 30% gain on
"Porter and the Stansberry gang, first, let me thank you for the last several years of service and investment advice, it has been invaluable with increasing my investments portfolio substantially. I'm personally one of the lucky few that had a measure of success in my life that allowed me to retire at age 52, I'm 57 now. More of that is luck rather than skill but the one thing I'm certain that made me successful was surrounding myself with great people, the best and the brightest I could find.
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"It would be hard for me to single out just one of you as I utilize investment advice from all of you and own multiple
"I did want to give you, Porter, a shout out however for recently adding Mr. Greg Diamond to your staff, having a technical analyst really rounds out your stable of expertise. While I've been wanting more TA advisement to lean on I was still hesitant to add the Ten Stock Trader service that Greg is heading up. You'll probably be flooded with similar type email this week, but it was a service well worth adding.
"On the first trade
"Thanks, Greg, for a great trade! I was really thrilled when I first got the email about your service and that it would be available for Flex members! This is exactly the kind of service I've hoped for and I'm already loving your analysis and can't wait to learn more. I really appreciated your willingness to close out a trade for quick profits! I only bought one contract as I've decided to lay down a few bunts before swinging for the fences. I hope others will take your allocation recommendations seriously! I hate it when Stansberry gets blamed for [readers] not following instructions!" – Paid-up Stansberry Flex member Bob A.
"Greg, awesome performance off the starting line! I was able to
Regards,
Justin Brill
Baltimore, Maryland
April 23, 2018