Why are stocks at all time highs?
If you listen to the financial media, you’ll hear all kinds of explanations:
- Stocks are higher because the Fed is stoking inflation.
- The market hit a record because “there is no alternative.”
- Investors are buying out of irrational exuberance.
And the list goes on and on…
Some of these explanations are true, and there are certainly risks you need to avoid.
But at the heart of this bull market is a healthy corporate America churning out profits as the economy recovers.
Earnings season is now more than halfway over, and so far the news has been very good! Companies are turning in earnings beats at rates not seen in over a decade. And companies are telling investors to expect even more profit growth in the fourth quarter.
Earnings beats are helping the market in two distinct ways.
First, higher corporate profits give investors a better fundamental base for buying stocks.
Remember, when you buy shares of a stock, you’re actually buying part of the company. Which technically means you own a percentage of the profits that company generates. So higher profits give you more bang for your investment buck.
Second, earnings beats help to give investors more confidence!
This confidence shows up in the form of new buy orders which ultimately drive stock prices higher.
As long as earnings continue to rise, the bull market is likely to continue!
Today’s links include record earnings beats, 3-D printed houses, OPEC’s clash with Biden and more!
Earnings Beats Despite Inflation
- FactSet: S&P 500 earnings continue to beat expectations.
- Companies beating expectations at the third highest rate since 2010.
- Analysts expect earnings growth above 20% in Q4 — more than 40% for 2021.
- With 56% of companies reporting, 82% of reports beat expectations.
- FT: Family offices concerned about inflation, bullish on hard assets.
- Family offices have access to a wider assortment of investments.
- Investments are focused on hard assets, real estate and operating businesses.
- Family offices are heavily weighted in alternative (unlisted) investments.
- FT: Cost of breakfast foods hits 10-year high.
- Food companies including Nestle and Procter & Gamble raising prices.
- Production challenges alongside higher demand is causing food inflation.
- Wheat futures prices up 20% from start of the year.
Energy Crisis Spans the Globe
- Bloomberg: Russia is no longer Europe’s reliable gas supplier.
- European shortage of natural gas sent prices soaring.
- Russia appears to be withholding supplies to secure pipeline approval.
- Bloomberg: OPEC+ heads for clash with Biden – rejecting call for more oil.
- Kuwait says cartel should stick with gradual output increases.
- U.S. gasoline is at a 7-year high near $3.70 per gallon.
- OPEC members say covid crisis still sapping demand for crude.
China’s Ever-Growing Evergrande Problem
- Bisnow: Creditors take over Oceanwide Center in San Francisco.
- Chinese developer Oceanwide Holdings missed debt payments.
- Oceanwide also paused construction on project in Los Angeles.
- WSJ: Chinese high-yield bond market nearly shut.
- Chinese real estate developers need to roll more than $40B in debt.
- Chinese junk bonds were yielding about 21.6% last week.
- Investors concerned Chinese developers will not be able to service loans.
Housing, Savings and Personal Debts
- WSJ: 3-D printed houses sprouting near Austin.
- Lennar Corp. and tech firm Icon to start building next year.
- 3-D Home printing could help solve America’s home shortage.
- Skilled tradesmen are a dying breed.
- WSJ: People don’t save enough, there are ways to fix that.
- Roughly 4 in 10 Americans don’t have $400 available for an emergency.
- People are 4X more likely to start saving $5 a day than $150 a month.
- Auto-enrollment of savings plans could encourage more to save.
- LendingTree: States where you’re hounded for bogus debts.
- Consumers in Georgi are 3X more likely to be pursued for a bogus debt.
- Nearly 80% of complaints involve fraudulent or mistaken debt.