Since last summer, I have written several blog posts on positive earnings from the S&P 500 constituents. We view accelerating earnings growth as a key driver of stock prices moving forward. Schwab's Chief Global Investment Strategist Jeffrey Kleintop just wrote a very compelling post called "Earnings may be about to do something they've never done before." Thanks to global growth picking up across virtually all regions, global earnings (measured by the MSCI All Country World Index) are expected to reach new heights in the near future. This is also bullish for the S&P 500 which generates roughly 44% of its revenues from outside the US.
Despite the weekly doomsday headlines (this week is from filmmaker Michael Moore - we do not recommend taking investment advice from fimmakers, ever), Billionaire hedge fund manager David Tepper called comparisons of today's market with the tech bubble of 1999 'ridiculous' and we wholeheartedly agree. Tepper who runs Appaloosa Management says that the market run doesn't translate into over the top valuations in equities.
Thanks to Uncle David for forwarding a CNBC article on how famed hedge fund manager Stan Druckenmiller raised his stakes in Chinese companies in the last quarter. According to recent 13-F filings, his firm Duquesne Capital bought Chinese consumer and tech stocks in the second quarter.
Last Friday on CNBC, former Fed Chairman Alan Greenspan said that it's fair to characterize the current bond bubble as an "irrational exuberance" type of forecast. He did hedge the statement by saying that he has "no time frame on the forecast." Also note that he started making this bond bubble call in 2015.
Berkshire Hathaway is close to a milestone that Warren Buffett doesn't want to achieve. On Friday, the company reported that it held $99.7 billion in cash at the end of the second quarter. Thanks to a collection of businesses that generate lots of cash, Berkshire's cash has been growing steadily in recent years. Because the company doesn't pay a dividend and rarely buys back its own stock, Buffett is on the hook to find ways to invest those funds. The huge cash hoard shouldn't be taken as a pure bearish signal. Remember he didn't sell assets to raise cash. In fact, he would love to spend some and he said "I hate cash" earlier this year. However, he is having trouble getting the right company at the right price.
Strategist Jim Paulsen just said the perfect quote to be scoffed at on social media. Of course he doesn't believe this but it makes for the headline of the day for CNBC. Gotta love it. In the past, you would probably say that this signals a market top but if you look below the headline, his bullish case is much like ours. He just said the quote to gain more views and mission accomplished on that.
This week I spent a couple of days in Hartford attending IMPACT Live 2017 where I met other great bloggers and inbound marketing experts. Thanks to IMPACT CEO Bob Ruffolo for the invite and incredible conference. I'm already looking forward to next year. While the conference centered on marketing, the talk that blew people's minds was from Paul Roetzer on "The Path to a More (Artificially) Intelligent Future." It definitely made for great lunch conversations shortly afterward. Here are some of the highlights and my thoughts.
The S&P 500 is roughly halfway through earnings season with 237 companies having reported. It has been a very strong period so far with 79% of companies beating expectations vs an average 73% over the last 10 years. Earnings are on track for double-digit growth once again and this should be a bullish catalyst for the market in the second half of the year. As we discussed in our last quarterly webcast for clients, reported earnings continue to accelerate and we view this as extremely positive for the stock market. Here is the chart from our call:
Back in 1999, I was covering technology IPOs for CREF Investments. The theme was that brick and mortar stores were going to be crushed by online retailers. All you needed was eyeballs on your website and your stock would go up 10% per day. It was a crazy time. The theme would turn out to be a good one but way too early and most of the companies that I saw during that period are now bankrupt.
This year, emerging markets have run ahead of the S&P 500 after years of underperformance. Thanks to a declining dollar and continued monthly inflows, emerging markets have been a shining star in the 1st half of the year. Now the question is: will the trend continue? Let's take a quick look at a couple of charts.
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