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Posted on July 23, 2018

Weekly Market Commentary July 23, 2018

Market Commentary

The stock market had a rather boring week. The S&P 500 stayed in a tight range throughout the week and finished basically unchanged. Global stocks performed a little better as the MSCI ACWI inched 0.1% higher. The Bloomberg BarCap Aggregate Bond Index dropped 0.3%.

Key points for the week

  • Corporate earnings continued to show healthy growth in the second quarter.
  • Investors have grown wise to how corporations manipulate expectations.
  • We focus on the long-term business value and not quarterly fluctuations in earnings.


What to Expect When You’re Expecting

As the second longest bull market in U.S. history remains in full effect, investors seem to be factoring in expectations that companies will do better than analysts expect. So far this quarter, 87% of companies have beat earnings estimates with a surprise percentage of 4.5%, both percentages being way above five-year averages.

Corporations are able to beat expectations so consistently by deliberately managing expectations lower and then beating that target. But investors have become wise to the tactic. As the accompanying chart shows, beating earnings now results in little to no price gain, while missing results in a large price drop. There used to be a modest reward for beating expectations, but it has now disappeared.

While some firms continue to play the earnings game, our focus remains on taking a long-term view and using quarterly earnings as a checkpoint to make sure our investments are on the right path.


Fun Story of The Week

Ontario woman accidentally steals car for 2 weeks

Yes, you read the headline correctly. A woman in Ontario recently rented a black Nissan Sentra then made a stop at a local Walmart. After her shopping trip, she went back to the area where she had parked and got into a shiny black vehicle. Only problem was it wasn’t her rental car. She didn’t notice until she tried returning the stolen vehicle and complained about its cleanliness. When the rental car manager saw the Infiniti QX50 hatchback, he knew something wasn’t right.


 

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