The “New” Earnings Season

  • Earnings season ain’t what it used to be
  • How to harness earnings season to pad your retirement
  • Here’s why Trump should be nervous about the Dow’s rise on his watch
  • Asset manager warns about passive investing (you heard it here first)
  • Legal marijuana’s job boom
  • Bogus “wage inflation,” continued… what really happens behind the scenes when you buy a firearm… the price of a Dodge Challenger, then and now… and more!

Here comes the hand-wringing as earnings season approaches.

The quarterly ritual gets underway on Thursday. CNBC tells us “analysts collectively expect third-quarter earnings to be the worst of the year when it comes to profit growth, according to S&P Global.”

Sounds bad, right?

In reality, profits for the S&P 500 companies are expected to grow 4% year over year. It only looks bad because the growth was so much stronger during the first and second quarters — registering double-digit increases.

And that growth was so strong only because profits the first half of last year were so weak. Back then, companies would have killed for 4% profit growth…

Earnings season ain’t what it used to be.

For decades, the aluminum giant Alcoa was the first of the 30 companies in the Dow Jones industrials to report its earnings each quarter. Alcoa’s numbers were the traditional start of earnings season. But four years ago, the keepers of the index decided to kick out Alcoa and replace it with Nike.

Some Wall Street traditionalists stuck with saying Alcoa marked the start of earnings season… but late last year, Alcoa split into two companies and both of them switched up their reporting schedule.

Now the first of the 30 stocks in the Dow “industrials” to report is… JPMorgan Chase.


Once again, we’re reminded of a line from Season 2 of The Wire, uttered by the union boss Frank Sobotka: “We used to make s*** in this country, build s***. Now we just put our hand in the next guy’s pocket.”

But we digress…

Earnings season “is the time of year when stock prices can jump the most,” says Alan Knuckman, our man at the Chicago Board Options Exchange.

“That’s because investors and analysts have already guessed what each company’s numbers will say. They’ve invested their money based on those beliefs. But if they’ve guessed wrong, they’ll frantically buy or sell shares to make up for that mistake.”

Using proprietary software, Alan has identified seven stocks most likely to catch investors by surprise. “When the news comes out, I expect their prices to swing dramatically. And I’ve selected seven investments that are set to make the most out of those unexpected moves.”

With Alan’s guidance, you stand a chance to dramatically boost your retirement savings during the 42-day window of earnings season.

But only if you act before earnings season gets underway on Thursday. To learn more about how this “42-day retirement window” can change your life, give this a look right away.

The banks are closed and the mail won’t be delivered today, but the markets are open… and the major U.S. indexes are hugging their record highs. The Dow is off less than a point at 22,773.

“The President Trump stock market rally is close to becoming the greatest in 85 years,” says a New York Post story that Drudge linked to this morning.

“Since Election Day, the Dow Jones industrial average has surged 24.7% — fueled in large part by investor enthusiasm for Trump’s plans to cut regulations and taxes and bring back manufacturing jobs.

“Barring a large sell-off over the next month, Trump’s Dow rally will surpass the 23.3% gain the much-watched stock index posted in the year following the election of President George H.W. Bush.”

Hmmm… Poppy Bush was also the last president who had the misfortune of a recession arriving midway through his first term, and the last president to get the heave-ho after only one term.

Not saying that’s what’ll happen now… but the “expansion” since 2009 is getting long in the tooth.

Gold is recovering from its sell-off last Friday; at last check the bid was $1,279.

Guilty conscience, perhaps? The financial establishment is warning about a stock market risk we first spotted in early 2016.

From this morning’s Financial Times: “The head of the fourth-largest exchange-traded fund provider has warned that investors are blindly pouring money into highly concentrated stock indexes, putting them at risk of outsized losses if markets tumble.”

We mentioned the “passive investing” phenomenon most recently last month — retail investors like you shunning high-cost and low-performance mutual funds in favor of funds and ETFs that merely track an index like the S&P 500.

Passive investing has the effect of making big stocks even bigger. Indexes like the S&P 500 are weighted by market capitalization. If you buy an S&P 500 index fund, about 13% of that money will go into five ginormous tech stocks — Apple, Alphabet (Google), Microsoft, Amazon and Facebook.

Result? The top 10 ETFs have pulled in $65 billion in new investor cash this year.

Now Martin Flanagan, CEO at Invesco, is warning that “Too many people have created their total portfolios with cap-weighted indexes thinking they are safe and cheap.

“The reality is they are turning more and more into momentum plays,” he tells the FT. “You are ending up with a disproportionate amount of your portfolio in the biggest stocks.”

Flanagan can’t bring himself to say what we said: When the stock market starts turning south — sooner or later, it’s gonna happen — the process will feed on itself in reverse. Selling will beget more selling.

Not that these worries got in the way of Flanagan’s firm acquiring the Guggenheim family of ETFs last month. Heh…

A quick follow-up from Friday: Jim Rickards wants to throw more cold water on the notion of accelerating “wage inflation.”

The government job numbers on Friday indicated a 0.5% monthly increase in average hourly earnings. Jim said there’s less than meets the eye because while wages might be rising, people aren’t spending that money — which is what ultimately fuels price inflation.

But there’s another layer to the onion worth peeling away: “The reason ‘average’ wages went up,” says Jim, “is that the jobs wiped out by hurricanes Harvey and Irma were low-paying jobs in restaurants.

“So it’s not the case that everybody got a raise on average; it’s the case that poor people got zeroed out and rich people kept working, so the ‘average’ went up.

“Not exactly a bullish result, and a good example of how you have to continually dig behind the headlines to get the real story.”
Jim insists that subpar inflation figures will prompt the Fed to hold off on raising interest rates at its December meeting — a forecast that’s far out of the mainstream right
now, but he’s sticking with it.

If the job market is fairly tight now, legal marijuana stands to make it only tighter, says our penny pot stock pro Ray Blanco.

“Currently, the legal cannabis industry employs an estimated 165,000–230,000 full- and part-time workers, according to Marijuana Business Daily,” Ray notes. “And that number is going to rise dramatically as legal medical and recreational cannabis become the norm in more states.”

Consider California, where recreational weed becomes legal in January: “The state is hiring several six-figure science positions for its burgeoning Bureau of Cannabis Control,” says Ray, “which had just 11 full-time workers last year — but has needed to find new office space for the more than 100 staff expected to fill the ranks by February.”

The pay, you wonder? A pot-engineering geologist can land a job with the state for $115,000. Nice.

Higher education is eager to latch on to legal weed, too.

“Northern Michigan University recently announced a major in medicinal plant chemistry. The program is the only four-year undergraduate program of its kind, according to NMU,” Ray says. “Students can choose between an entrepreneurial track, which includes business and accounting classes, or a bioanalytical track, which covers more advanced chemistry and biology.”

The capstone course, by the way, is called “CH 420.” Get it? 420?

medical plant chemistry

Ray observes: “It’s clear that a major trend is afoot. Good, professional pot jobs are here to stay.

“And as other states without legal pot watch it happen, it becomes hard to turn down the huge

tax windfall and job creation that come with making marijuana legal and regulated.”

Just as marijuana business is coming into its own, Ray’s pot-stock recommendations are healthy and growing.

“There is no way for the FBI to track how many firearms someone buys, even through a federal firearms licensee like myself,” a reader writes in response to Friday’s mailbag.

“When someone comes in to buy a firearm I do a background check through the FBI on the person. They can buy all the long guns they want on this one check and the only one to have the information is me. There are five lines on the form to fill in with firearms, and if there are more I can put them on a separate sheet of paper. I do not transmit his information to the FBI. All they know is that I have performed a background check on the individual, and they can only keep this information for a short period of time.

“If the sale involves handguns, which in Wisconsin requires a state background check, and involves two or more in five of my business days, I have a separate form to fill out and send to my local police force and the FBI. This info they can keep, and I have had them check some of my customers who buy multiple handguns to see if they are, indeed, selling them to someone else.

“As far as multiple firearms in the house, all of my friends and acquaintances have at least 10 and some have hundreds. As yet, none has killed anybody. I don’t know anybody with a bump stock, though. Just sayin’.”

“If the Federal Reserve is so desperate to see a rise in inflation,” a reader writes, “why don’t they stop airbrushing out food and energy — or go really simple and measure the purchasing power of the dollar over time?

“I was in grammar school in the early ’70s, when I could walk into McDonald’s and buy a hamburger for 25 cents or cheeseburger for 27 cents and no sales tax. The gum ball machine in the local supermarket was a single penny. Today that gum ball is 25 cents and that burger is about $1.

“My ex-brother-in-law in 1971 purchased a brand-new Dodge Challenger with a base V8 and no A/C for $2,500 off the lot. Today a base model Dodge Challenger starts at $26,995 or just shy of 11 times the price from 46 years ago. That would be OK if today’s income were 11 times higher, but it’s not. Federal minimum wage was $1.60 back then. It should be about $17.50 today if it kept up with inflation, but it’s only $7.25

“I have not done the math, I’ll leave that to you guys, but it sure feels like a whole lot more than just a 1.3% or even 2% inflation rate.

“Oh, one last thing. Back when I was growing up it was the norm in my town for Dad to be the paycheck winner while Mom stayed at home dealing with two or three kids. Dad’s single paycheck managed to pay the mortgage and all other expenses. Homeownership today appears to be a pipe dream for most on a single income and real struggle for a dual-income couple. Never mind adding kids to the equation.”

The 5: Yup. After Nixon killed the dollar’s last tie to gold, a family maintained a middle-class lifestyle first by Mom going to work (’70s and ’80s)… then by saving less (’90s)… then by going into debt (2000s). It all went kerflooey in 2008 and we haven’t really recovered since.

You raise an interesting point about the Fed’s obsession with the “core” rate of inflation, excluding food and energy.

A few years ago we’d report the inflation numbers and joke about the core rate “for people who don’t eat or drive.” Fed pooh-bahs loved the core number because it was always lower and thus they could state that inflation isn’t “really” the problem it seemed to be.

Then the bottom fell out of oil prices starting in mid-2014 — from over $100 a barrel to [checking our screens] $49.54 this morning. At times the core inflation rate can be higher than the so-called headline number.

We’ll see how long the Fed chooses to hang onto its “core” fetish…

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. Only three days remain before third-quarter earnings season is underway.

Which means only three days remain in which you can be on board for Alan Knuckman’s “42-day retirement window.”

Within that 42-day window, you can dramatically shorten the timeline to fund your retirement. See how it works right here.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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