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Disciplined Investing

A Policy Error Could Trip Up Stocks

 January 17 2021     David Templeton
Broadly investors have enjoyed strong returns in stocks over the past two years, the S&P 500 Index returned 31.5% in 2019 and 18.4% in 2020. Last year's return occurred in an environment where earnings for S&P 500 companies is expected to equal $133, down from $157 in 2019. This move higher in stocks at the same time earnings declined has pushed large company stock valuations to levels where one m...

Small Business Optimism Turns Decidedly Negative

 January 12 2021     David Templeton
The NFIB Small Business Optimism Index turned decidedly negative in December. The index fell 5.5 points to 95.9 and is below the index's long run average of 98. NFIB reported 9 of the 10 index components declined. The survey report notes, "The drop in small business optimism was historically very large...Most of the decline was a result of substantial weakness in the outlook for sales and business...

Broadening Participation In Equity Market Asset Classes

 January 9 2021     David Templeton
One favorable aspect of the recent equity market performance is the broadening participation of asset classes other than the large cap FANGMA stocks, Facebook (FB), Amazon (AMZN), Netflix (NFLX), Google (GOOGL), Microsoft (MSFT) and Apple (AAPL). As the below chart shows, during the first eight months of 2020, the average return of this basket of stocks significantly outpaced the other asset class...

Winter 2020 Investor Letter: From Pandemic To Transition

 January 7 2021     David Templeton
The just completed year of 2020 saw the S&P 500 Index increase a strong 18.4% and this is on the back of a 31.5% return in 2019. One might not have expected this with a large number of state economies constrained by virus mandated restrictions early in the year. For the five calendar years from 1995-1999 the S&P 500 Index returned 20%-34% in each year. Could the market be in for a repeat of that t...

Stock Buybacks Increase As Reported Earnings Jump

 December 20 2020     David Templeton
S&P Dow Jones Indices' recent report on buyback activity for the third quarter shows buyback activity increasing to $101.79 billion from $88.66 billion in the second quarter. With the economy mostly reopening, at least through Q3 2020, companies reported an improvement in 'as reported earnings,' increasing to $273.2 billion versus $98.5 billion for the first quarter. As the red line in the below c...

Too Many Individuals On The Sidelines

 December 13 2020     David Templeton
In the blog post I wrote about a year ago commenting on the October 2019 Job Openings and Labor Turnover Survey (JOLTS) I noted the employment market was extremely strong and there were not enough workers to fill job openings. At that time the unemployed workers per job opening ratio was .81. In other words there were more job openings than unemployed. Fast forward one year later to the October 20...

Small Business Optimism Ticks Lower

 December 8 2020     David Templeton
The NFIB's November Small Business Optimism Index declined 2.6 points to 101.4. As NFIB notes in their report the Index level is at a historically high level with the 47-year average reading equaling 98. Below are a few key findings in the report:"Earnings trends over the past 3 months declined 4 points to a net negative 7% reporting higher earnings quarter over quarter.""Six percent of owners cit...

Broadening Equity Market Participation

 December 6 2020     David Templeton
It seems a broad range of equity indices are hitting new all time highs every day and some investors question whether this can continue. The S&P 500 Index closed at an all time high Friday, December 6, bringing its year to date return to 14.5% on a price only basis. In earlier posts I discussed the roller coaster ride of the market as it traversed the coronavirus shutdown and reopening. The S&P 50...

Earnings Matter And They Have Improved Significantly

 November 26 2020     David Templeton
This week the government released the second estimate of third quarter U.S. GDP at 33.1% growth at an annual rate, unchanged from the earlier advanced estimate. This is a sharp snapback from second quarter's 31.4% contraction. Of course this significant swing is a result of the virus mandated economic shutdown and reopening.Although virus cases have increased near term, the reopening process conti...

Shorts Getting Squeezed

 November 25 2020     David Templeton
If the performance of Refinitiv's U.S. Most Shorted Stocks Index is any indication, the shorts have been caught off guard since the market has accelerated higher over the last two months. Most of the move began subsequent to the U.S. election. As the below chart shows the Most Shorted Index is up over 30% while the S&P 500 Index is up 7.9%. Investors likely are not surprised by some of the perform...
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